annual report 2020 nurturing growth · . his royal highness prince salman bin hamad al khalifa...

NURTURING GROWTH

Annual Report 2020

Strategic Report02 Overview04 Financial Highlights05 Key Indicators06 Financial Review10 Board of Directors13 Shari’a Board14 Chairman’s Statement18 Executive Management22 Group CEO’s Statement26 Management Review30 Organization Chart

Corporate Governance31 Corporate Governance

Financial Statements37 Corporate Information38 Independent Auditors’ Report to the

Shareholders40 Consolidated Statement of Financial

Position41 Consolidated Statement of Profit or

Loss42 Consolidated Statement of other

Comprehensive Income43 Consolidated Statement of Changes

in Equity44 Consolidated Statement of Cash

Flows45 Notes to the Consolidated Financial

Statements

91 Risk and Capital Management Disclosures

Bahrain Development Bank B.S.C. (c)BDB Building, Diplomatic AreaP.O. Box 20501, Manama,Kingdom of BahrainT: (+973) 17 511111, F: (+973) 17 534005E: [email protected]

Contents

02 31 37

www.bdb-bh.com

His Royal HighnessPrince Salman bin HamadAl Khalifa

Crown Prince and Prime Minister of the Kingdom of Bahrain

His MajestyKing Hamad bin IsaAl Khalifa

The King of the Kingdom of Bahrain

BAHRAIN DEVELOPMENT BANK BSCANNUAL REPORT 202002

Bahrain Development Bank (BDB) provides a variety of financial services that are tailored to meet the needs of small and medium enterprises in Bahrain.

Overview

Bahrain Development Bank commenced its operations in 1992 as a specialist Bank. BDB’s activities are focused on financing and developing small and medium enterprises in addition to encouraging and supporting entrepreneurship activities in the Kingdom of Bahrain. Working in-line with Bahrain Economic Vision 2030, BDB stimulates entrepreneurial activities through adoption of effective & dynamic strategies for financing small & medium enterprises.

This strategy is in line with the Bank’s mission of being an active participant in national strategy by supporting this sector of the economy. BDB’s role in this context is especially significant given the growing size and contribution of this important segment to the domestic economic activity.

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS

BAHRAIN DEVELOPMENT BANK BSCANNUAL REPORT 2020 03

BDB adopts a dynamic and effective strategy for stimulating entrepreneurial activity.

VisionTo support projects that yield substantial economic, social and environmental benefits.

MissionTo promote entrepreneurship and innovation in the Kingdom, by encouraging Bahraini professionals, enterprising women and ambitious youth, who demonstrate strong business acumen and leadership qualities in promoting the growth and prosperity of Small and Medium Enterprises (SMEs) through financial support and advisory services.


2020 2019 2018 2017 2016

Income statement highlights (BD Thousands)

Net islamic finance and interest income 7,323 6,646 6,398 6,701 7,996

Other income 1,370 1,969 3,788 3,115 2,201

Operating expenses 8,070 7,642 7,551 9,335 9,279

Expected credit losses / provision / impairment 112 (1) 4,074 8,152 1,971

Net profit (loss) 563 1,037 (1,326) (7,671) (1,053)

Dividend (%) - - - - -

Financial statement highlights (BD Thousands)

Total assets 226,483 151,260 158,205 176,170 211,333

Islamic financing and loans to customers 146,630 76,731 85,866 114,535 139,221

Investments (securities, properties, associates) 67,809 53,296 43,403 27,595 26,903

Total deposits 118,030 34,918 35,001 46,440 69,216

Customers’ deposits 118,030 29,451 35,001 35,084 58,541

Total Equity 68,705 69,326 67,491 72,685 80,361

Profitability

Return on average equity 0.82% 1.52% -1.89% -10.02% -1.30%

Return on average assets 0.30% 0.67% -0.79% -3.96% -0.51%

Earnings (Loss) per share (fils) 9 16 -20 -118 -16

Cost-to-income ratio 93% 89% 74% 95% 91%

Capital

Equity/total assets 30% 46% 43% 41% 38%

Total deposits/equity (times) 1.72 0.50 0.52 0.64 0.86

Capital adequacy 63.84% 52.51% 46.56% 39.80% 38.61%

Business indicators

Islamic financing and loans to customers/total assets 65% 51% 54% 65% 66%

Investments/total assets 30% 35% 27% 16% 13%

Islamic financing and loans to customers/customer deposits 1.24 2.61 2.45 3.26 2.38

Number of employees 162 157 166 182 188

Financial Highlights



Net Profit (loss)(BD Thousands)

Net Islamic Financing and Interest Income (BD Millions)

Cost to Income Ratio

20202019201820172016 20202019201820172016

9

8

7

6

5

4

3

2

1

0

93%

7.36.66.4

6.78.00

89%74%95%91%

Islamic Financing and Loans to Customers(BD Thousands)

150.00

100.00

50.00

-

100%

50%

0%

-50%

-100%

5631,037

(7,671) (1,326)

(1,053)

139,221

114,535

85,86676,731

146,630

20202019201820172016

Net Islamic Financing and Interest Income (BD Thousands)

7,323Total Assets(BD Thousands)

226,483Total Equity(BD Thousands)

68,705

Key Indicators

7,323 226,483 68,705

6,646 151,260 69,326

6,398 158,205 67,491

6,701 176,170 72,685

7,996 211,333 80,361

2020 2020 2020

2019 2019 2019

2018 2018 2018

2017 2017 2017

2016 2016 2016


Financial Review

The Bank continued the trend of profits established in the previous year, and reported a Net Profit of BD 0.563 million, Previous Year BD 1.04 million.

OverviewDespite a very challenging operating environment on account of COVID-19 and substantial concessions allowed to its customers, the Bank continued the trend of profits established in the previous year, and reported a Net Profit of BD 0.563 million (2019: BD 1.04 million). This was possible through an increase in disbursements, adopting new strategies to tackle the challenges faced, further enhancements in the standards for monitoring the asset portfolio, focusing on deriving value from the impaired portfolio, control over costs and also prudent deployment of available surpluses.

Balance Sheet size as at the end of 2020 BD 226.48 million was higher by 49.73% (2019: BD 151.26 million) mainly because of higher disbursements.



1.Net Islamic Finance and Interest Income

Net Islamic finance and interest income BD 7.32 million was higher by 10.08% (2019: BD 6.65 million) on account of increase in Islamic finance and interest income as well as lower interest expenses.

4.Expected Credit Losses / Impairment

As a prudent measure to safeguard against the probable aftermath of the COVID-19 Pandemic in the future, the bank has taken higher provisions for expected credit losses and impairment of BD 112 thousand. (2019: Reversal of BD 1 thousand).

2.Other Income

Total other income generated during the year BD 1.37 million was lower (2019: 1.97 million) mainly on account of lower rental income in the subsidiaries due to waivers allowed to tenants as a concessionary measure to tide over the difficulties faced on account of the COVID-19 Pandemic.

5.Equity

The equity attributable to the Bank’s shareholders, at BD 68.72 million, was lower than that of the previous year (Dec. 2019: BD 69.33 million) on account of recognition of the modification loss for deferrals of instalments (allowed as a concessionary measure, to eligible clients to tide over the hardships of the Pandemic), net of concessions received from the Government in equity as directed by the Central Bank of Bahrain (CBB), which was partially set off by the profits earned.

3.Operating Expenses

Operating expenses BD 8.07 million was higher by 5.63% compared to the previous FY (2019: 7.64 million). The increase was in staff costs due to new recruitments, mainly to fill vacancies in Senior Management positions and promotions/increments.

6.Capital Adequacy Ratio

As against the minimum capital adequacy ratio (CAR) of 12.5% prescribed by the Central Bank of Bahrain (CBB), the Bank’s ratio at the end of year 2020 was 63.84% (2019: 52.51%). The ratio, based on guidelines issued by CBB, which are compatible with those of the Basel Committee on Banking Supervision, measures total qualifying capital held by an institution in relation to its risk weighted assets. The improvement in CAR was due to the change in the Risk Profile of the Assets Portfolio.


NURTURING GROWTH THROUGHSYNERGYAs a team, we continue to build on the foundation that will deliver better, stronger and more efficient performance over time. Our ongoing operational, hierarchical and digital transformation has made us more capable of sustainable growth.

Growing our Peoplein line with our strategic plan towards digital transformation.

Talent Acquisitionto maintain a strong momentum with growth, transformation and innovation.

Strong Corporate Governancethat guide all employees and directors through best practices.



SYNERGY

Maryam Adnan Al Ansari Member

Marwa Khaled Al Saad Member

Khalid Al Rumaihi Chairman

Sabah Khalil Al MoayyedMember

Marwan Khalid Tabbara Member

Tariq Jaleel Al SaffarMember

Tala Abdulrahman Fakhro Member

Ghassan Ghaleb AbdulaalMember

Board of Directors


Khalid Al RumaihiChairman

Joined BDB Board: March 2016

ExperienceKhalid Al Rumaihi was appointed as the Chief Executive Officer of Mumtalakat, that took effect from September 2019. Prior to joining Mumtalakat, he served five years as the Chief Executive of the Bahrain Economic Development Board (EDB) where he was responsible for channeling inward investments into the country. He continues to play an active role as a Board member of the EDB.

Before heading the EDB, Mr. Al Rumaihi spent over 10 years at Investcorp as a Managing Director where he was also a Member of the Management Committee and Head of the Institutional Placement Team covering Investcorp’s clients in the Arabian Gulf. Before that, he had a nine-year term in J.P. Morgan as head of its Private Client Group in the Gulf region.

Other DirectorshipChairman: Bahrain Real Estate Investment (Edamah). Board Member: Mumtalakat, McLaren Group, National Oil and Gas Authority & Oil and Gas Holding Company (Nogaholding).

QualificationsMaster’s degree in public policy specializing in Economic Development from Harvard University, and a Bachelor of Science degree in Foreign Service from Georgetown University.

Sabah Khalil Al MoayyedBoard Member


ExperienceThe Managing Partner of Intellect Resources Management W.L.L. Mrs. Sabah had held the position of Chief Executive Officer and Executive Board Member of Eskan Bank Bahrain, Chief Executive Officer and Member of the Board of Directors of Ahli United Bank Bahrain B.S.C, Assistant General Manager, Corporate Banking/Financial Institution and Trade Finance at The National Bank of Bahrain B.S.C, Vice President Investment Division, Financial Banking Services at United Gulf Bank Bahrain and Manager at Citibank Bahrain with extensive experience in corporate, retail, and investment banking.

Other DirectorshipChairperson: Flat6Labs Bahrain W.L.L

Board Member: L’azurde Company for Jewelry (Chair of the Audit Committee), Investcorp Financial Services B.S.C (Member of the Audit Committee), The Council for Higher Education Bahrain (Member of the Board of Trustee and Chair of the Finance and Administrative Committee).

QualificationsMaster’s Degree in Business Management Finance from University of De Paul, Chicago, a Bachelor degree in Economics and Business Administration from the American University of Beirut, Lebanon, and has attended Advanced Executive Management programs at Wharton School Pennsylvania and Darden College Virgina - USA.

Tariq Jaleel Al SaffarBoard Member


Experience Mr. Al Saffar comes from a merchant family which focuses on FMCG products and food distribution. He has worked very closely with multi-nationals like P&G, Clorox, Gillette, Kellogg’s, etc. He has over 24 years of experience working with local & multi-national companies in the communications arena. He is also experienced in startup and management of companies from technology to healthcare and distribution.

Other DirectorshipChairman: KKT Bahrain Clinic, KKT MENA Holding B.S.C. (c), Harbour Investment Holding Company, Arabian Taxi Company B.S.C. (c), Payment International Enterprise B.S.C. (c).

QualificationsBachelor of Business, Marketing and Entrepreneurship with distinctions in Enterprise & Creativity from Edith Cowan University in Perth, Australia.

Marwan Khalid TabbaraBoard Member


Experience Co-Founder and Managing Partner of Stratum, a boutique advisory services firm based in the Kingdom of Bahrain and represents over 20-years of experience in strategic, financial, and transaction advisory. He has advised the firm’s clients on transactions both regionally and internationally and has supported the development and growth of a range of businesses. Previously, Mr. Tabbara worked for Citigroup in New York, London, and Bahrain.

Other DirectorshipChairman: Bahrain Flour Mills Company B.S.C.Board Member: Bahrain Islamic Bank B.S.C. (Chairman of Risk Committee)

QualificationsMaster’s Degree in Engineering Management and a Bachelor degree in Electrical Engineering and Economics from Duke University.

Tala Abdulrahman FakhroBoard Member


Experience A seasoned government administrator, fixed income product specialist and legal professional with extensive experience in structuring and portfolio management at Morgan Stanley in London, Gulf International Bank, the Saudi National Commercial Bank and NCB Capital in Bahrain. Currently holds the position of Chief Projects Officer at the Economic Development Board.

Other DirectorshipBoard Member: The Benefit Company B.S.C. (c) and SICO B.S.C. (c).

QualificationsA Juris Doctor from the Georgetown University Law Center in Washington DC, a Bachelor degree in Economics from Smith College, Northampton, and has passed the New York bar exam.

Ghassan Ghaleb AbdulaalBoard Member


Experience The Global Head of Operations within the Investor Relationship Management team at Investcorp. Mr. Abdulaal rejoined Investcorp in 2012 having previously spent six years with the firm from 2003-2009. In the intervening period between 2009 and 2012, he worked as an Investment Manager with Bahrain Mumtalakat Holding Company. Prior to joining Investcorp in 2003, Ghassan worked at KPMG where he was a Consultant within the Business Performance Improvement Group.

QualificationsMaster of Science in Analysis, Design and Management of Information Systems from the London School of Economics, and a Bachelor degree (Honours) in Accounting and Finance from the University of Kent at Canterbury, UK.

Maryam Adnan Al AnsariBoard Member


Experience Assistant Under-secretary for Follow up and Coordination at the Ministry of Finance and National Economy, responsible for monitoring the implementation of priority projects as set by Government Priorities Framework. Before that, she held a few positions at the Office of the First Deputy Prime Minister where she oversaw strategic housing and infrastructure projects. Prior to that, Ms. Al Ansari worked at the Economic Development Board (EDB) as part of the Reform Projects department, where she contributed to revising the National Economic Strategy, and worked closely with the Ministry of Housing and the Ministry of Transportation and Telecommunication on key strategic projects.

QualificationsBachelor’s degree in Commerce from University of McGill.

Marwa Khaled Al SaadBoard Member

Joined BDB Board: November 2019

Experience The Vice President of Human Resources at Mumtalakat Bahrain Holding Company. Ms. Al Saad brings over 10 years of experience in Human Resources management ranging from performance management, organizational development, and effectiveness. She has both international and local experience working for blue-chip companies such as: General Mills Inc., Cummins Power Generation, KPMG, Tatweer Petroleum; and YBA Kanoo Holdings W.L.L. where she was heading the Group HR function across the GCC.

Marwa was the Chairman of the Nomination & Remuneration Committee for AXA Gulf.

QualificationsMaster’s Degree from Purdue University, Krannert School of Management – USA with a focus in Human Resources and a Bachelor degree from Purdue University – USA majored in Organizational Leadership and Supervision.



Sheikh Abdulnasser Almahmood

Well versed in Islamic banking and finance with over 28 years of Islamic banking experience, and the head in the Sharia’a Coordination and Implementation department at Khaleeji Commercial Bank. Before joining Khaleeji Commercial Bank, Sheikh Abdul Naser was the Senior Manager in Sharia’a Audit Department in Ernst & Young – Bahrain. He also, worked as the Head of Sharia’a Internal Control Department in Bahrain Islamic Bank as well as member of the Sharia‘a Supervisory Board in many Islamic banks and institutions.

He holds a Master degree in Business Administration from the Gulf University, a Bachelor’s degree in Sharia’a and Islamic Studies from Qatar University, ADIC Advanced Diploma in Islamic Commercial from BIBF, CSAA Certified Shari’a Adviser & Auditor from AAOIFI, Associate Diploma in Shari’a Control from Cambridge University for training- approved by British Council, and an Instructor Certified in BIBF.

Dr. Omar Abdulaziz Alaani

Dr. Omar Abdulaziz Alaani has taught Islamic Economy in many universities in Iraq, Russia, Yemen and Bahrain. He also participated globally in several conferences within his field.

He has been working as an academic teacher in the University of Bahrain since 2000 in several fields, such as Financial transactions, insurance, Islamic Jurisprudence rules and has retired in 2018.

He obtained PhD majoring in Islamic Economics in 1997, a Master Degree in 1993 and Bachelor degree in 1984.

Dr. Mohammed Burhan Arbouna

An Islamic finance expert with over 20 years of Islamic banking experience and head of Sharia Compliance in Al Salam Bank. Before joining Al Salam Bank Bahrain, he was the Shari’a Head and Shari’a Board member in some other Islamic institutions.

He worked as a Shari’a researcher and consultant for the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). He lectures on Islamic banking and finance and gives consultancy on orientation and professional programs for a number of professional and educational institutions.

He is a member of the Editing Committee of International Islamic Financial Board (IFSB) and was a member of the steering committee for International Liquidity Management Framework under the supervision of the Central Bank of Bahrain.

He obtained a Master degree in Comparative Laws and a PhD in laws with specialization in Islamic banking and finance from International Islamic University Malaysia. He also has a Bachelor’s degree in Shari’a and a higher Diploma in Education from Islamic University, Medina.

Shari’a Board




The Directors of the Bahrain Development Bank Group, (“the bank and its subsidiaries”), pleasured to present the annual report accompanied by the consolidated financial statements for the year ended 31 December 2020, another year of continued profitability and growth.

2020 was a year of significant challenge for economies worldwide due to the pandemic. These challenges were witnessed on all fronts including both operational and financial. Despite the turbulent operating backdrop, Bahrain Development Bank (BDB) managed to make great progress in building on its core mandate to support Bahrain-based Small and Medium Enterprises (SMEs) and in addition help them mitigate the negative impact of the pandemic and sustain their businesses.

In line with our strategy, Bahrain Development Bank increased its disbursements by 179% in 2020 over 2019 (43% in 2019 over 2018). This was achieved through two main-focal points. The first being the continuation of the Liquidity Support Fund (LSF), which was launched by the Government of Bahrain in Q4 2019, and the second being the new concerted efforts to streamline and facilitate faster, smoother and more performance driven internal processes and organizational architecture.

Despite the global turmoil and financial unrest witnessed in 2020, BDB loans to SMEs have increased by 106%, with a total of BD 48.1 million in loan disbursements in 2020 (2019: BD23.4 million). This is a substantial achievement considering that, as a COVID-19 safety measure, almost 50% of the staff were working from home for the majority of the year.

I am also pleased to report that 155 businesses benefited from the various incubation facilities under the BDB group, including BBIC, Riyadat and Farmers Market, during 2020.

Chairman’s Statement


The BDB group has maintained tremendous momentum in its transformation journey. We are well on our way to a Cloud based environment with several workloads already migrated to Cloud and many more in the pipeline.



In addition to incubation, these businesses received different support initiatives & facilities to help them face the negative impacts of the pandemic.

The improvement in disbursements and revenues, effective credit, and recovery processes, along with strict cost control was first reflected in the year 2019 financials, where the Bank posted a full year net profit for the first time in 6 years. This positive trend has been maintained in 2020, with BDB group posting a positive bottom-line for the full financial year despite the adverse economic and credit environment.

In conformity with the BDB group’s strategic plan towards digital transformation, and to strengthen our executive management team, four new key members joined the group to support the bank’s initiatives on a number of fronts. The new appointments included a Chief Technology Officer, a new Head of Human Resources, a new Head of Credit, and a new head of digital marketing.

The BDB group has maintained tremendous momentum in its transformation journey. We are well on our way to a cloud based environment with several workloads already migrated to Cloud and many more in the pipeline. In addition, our core banking upgrade project was kicked off which will make BDB one of the first banks in the kingdom to operate on a cloud based state-of-the-art SaaS-based core banking system. These initiatives, in addition to the transformation planned for the customer facing channels with the soon-to-be launched new digital interface of BDB, ‘tijara’, will strongly position BDB as the digital banking partner of choice and a national enabler for SMEs and startups in Bahrain.

As the Bank increased its focus on the development of its digital and technology-driven services internally, it also remained dedicated to strengthening its role to support SMEs in the national economy. This was emphasized by continued efforts to support key national projects under the directives of the Central Bank of Bahrain (CBB).

In spite of the challenges faced in 2020, the BDB group under the wise leadership of the Kingdom of Bahrain has successfully overcome adversity to post another year of financial growth and success. The bank has demonstrated a good level of progress and has provided a solid foundation for its clientele for the years to come.

I would like to take this opportunity to extend my sincere thanks and gratitude to His Majesty King Hamad bin Isa Al Khalifa, the King of the Kingdom of Bahrain, His Royal Highness Prince Salman bin Hamad Al Khalifa, The Crown Prince and Prime Minister, and the many government ministries and institutions for their continued support and wise leadership.

In conclusion, I offer my thanks to the members of the Board of Directors, the executive management team and all partners and employees. We look forward to successful future collaboration towards our shared mission to build a sustainable economic future for the Kingdom of Bahrain.


SMEs Loan Disbursements

BD 48.1 m Despite the global turmoil and financial unrest witnessed in 2020, BDB loans to SMEs increased by 106%, with a total of BD 48.1 million in loan disbursements.

Incubated Businesses

155 155 businesses benefited from the various incubation facilities under the BDB group, including BBIC, Riyadat and Farmers Market.


NURTURING GROWTH THROUGHOPPORTUNITYBahrain Development Bank remains dedicated to strengthen the role of SMEs in the national economy. The crucial role of SMEs is being supported with the efforts of BDB, along with key public and private entities and institutions. This collaboration is designed to develop a strong, stable and secure entrepreneurship ecosystem as per Bahrain’s Economic Vision 2030.



Enhanced Product Offeringsby refocusing our core mandate, in order to support Bahrain-based Small and Medium Enterprises (SMEs).

Enhanced Customer Experiencethrough our ongoing operational, hierarchical and digital transformation that will help us in driving change.

Omni Channel Service Offering by streamlining the bank’s offering of innovative products and services to the SMEs sector through a world-class omni-channel platform.

Executive Management


Sanjeev Paul Group Chief Executive Officer

Raed Yousuf Bukannan Head of Banking

Vijay Kumar T. Chief Risk Officer

Nada Mohamed Abdulrahman Chief Technology Officer

Abdulrahman Abdulla Buheji Head of Credit

Shohra Abdulnabi Abbas Husain Head of Human Resources

Maitham A. Hameed Abbas Head of Business Development

Note: The executive management structure shown is as of 21st of March 2021



Sanjeev PaulGroup Chief Executive Officer

Joined BDB: 2018

Sanjeev Paul brings three decades of international banking experience to Bahrain Development Bank B.S.C (BDB). Prior to his appointment as Group Chief Executive Officer of BDB in May 2018, Sanjeev served Standard Chartered Bank (SCB) for 30 years as a member of SCB’s global leadership team. He served SCB as Managing Director and Regional Head of Commercial Banking for ASEAN and South Asia, heading the Bank’s commercial banking business across nine countries, including markets such as Singapore, India, Malaysia and Indonesia. Prior to that, he served as Global Head for Local Corporates and Commodity Traders - a business spanning over 30 countries in SCB’s global franchise. He has also headed SCB’s structured trade finance business as Global Head of Structured Trade Finance. Earlier to that, Sanjeev was responsible for setting up Standard Chartered Bank’s Middle Market Business in India and has served as the SCB’s Risk Approver for five years. Sanjeev served as the Chairman and Non-Executive Director on the Board of Directors for Standard Chartered Bank Vietnam Ltd for 3 years till 2019. He is a Non-Executive Director on the Board of Ebdaa Bank for Microfinance since October 2018 and also serves as an advisor to the Board of Tenmou, Bahrain.

Sanjeev is a Singaporean national & holds a Bachelor’s degree in Engineering and a Master’s degree in Business Administration (MBA) in Finance and Marketing.

Raed Yousuf Bukannan

Head of Banking

Joined BDB: 2019

Raed brings over 19 years of international and domestic banking experience to BDB. Previous to his appointment as Deputy General Manager – Head of Banking in 2019 where he supervises the Banking and Remedial & Collections Teams, he gained a wealth of experience serving top tier institutions. Some of these include HSBC, Ahli United Bank, and National Bank of Kuwait, where he worked with SMEs, Large Institutional Corporates, Multi-national Companies, Gov’t & Gov’t Related Entities, and Financial & Non-banking Financial Institutions.

Raed holds a Bachelor’s degree in Marketing from Nicholls State University, Louisiana, USA, and a Master’s degree in Business Administration (MBA) from St. Edward’s University, Texas, USA.

Abdulrahman Abdulla BuhejiHead of Credit

Joined BDB: 2021

Abdulrahman has more than 13 years of extensive experience in credit, investments, and corporate banking both conventional and Islamic in nature. Prior to joining BDB, Abdulrahman held several senior positions including, Acting Chief Credit Officer at BBK BSC, Head of Corporate Banking Analysts at BISB, Area Credit Manager at Bank ABC, and Project & Structured Finance Manager at GIB.

Abdulrahman graduated with an MBA from The University, of Manchester and holds a Bachelor of Commerce from Concordia University Canada. He also holds various professional certificates in Risk Management, Islamic Finance, and Real Estate, in addition to completing a comprehensive credit program (Credit Culture) with Moody’s.

Nada Mohamed Abdulrahman

Chief Technology Officer

Joined BDB: 2020

Nada has vast experience in the Information Technology field having held various IT leadership roles in the banking sectors over her 21-year career. Prior to joining BDB as Chief Technology Officer in 2020, Nada has held various key position in the financial sector in Bahrain, she was the Head of Information Technology at Khaleeji Commercial Bank, prior to this she was in charge of IT Infrastructure and Support at Bahrain Islamic Bank. Since joining BDB, Nada has supported the BDB’s digital transformation journey based on her experience in managing, and delivering major projects related to Electronic Channels and Customer Facing Solutions, Security and Availability, Internal Systems and automation.

Nada holds a BSc in Computer Science and a master’s degree in Project Management along with number of professional certificates in IT.

Shohra Abdulnabi Abbas HusainHead of Human Resources

Joined BDB: 2020

Shohra is an experienced HR professional with almost two decades of local and regional experience in the field. Before joining BDB in 2020 as Head of Human Resources and Administration, she was the Human Capital Director at Majid Al Futtaim where she led the Najm Human Capital function. Prior to this, Shohra was the MENA Region Resourcing Partner at Citibank and she also held leading positions at Emirates airlines and Ernst & Young.

Shohra holds a bachelor’s degree in accounting from the University of Bahrain, an MBA in Human Resources Management from Middlesex University Business School of London and is a Fellow Chartered Institute of Personnel and Development CIPD member.

Maitham A. Hameed Abbas

Head of Business Development

Joined BDB: 2017

Maitham brings more than 15 years of diverse experience to BDB. Prior to his appointment as head of Business Development at BDB in 2017, Maitham served Kuwait Finance House in the corporate banking and credit risk management divisions. Prior to this, he worked with UNIDO in investment promotion and entrepreneurship training and SMEs counselling. Before this, he worked at BDO in strategy consulting. In addition to his role as Head of Business Development, Maitham is also the Bank’s Board Secretary.

Maitham holds a Bachelor in Economics and Physics from McGill University in addition to various professional qualifications in finance and risk management.

Vijay Kumar T.Chief Risk Officer

Joined BDB: 2016

Vijay brings to the bank 28 years of regional and global banking and financial services industry experience across multiple streams of Risk Management, Solutions implementation and Consultancy services. Prior to joining BDB as Chief Risk Officer in 2016, Vijay was the Head of Risk Analytics for United Arab Bank in the UAE, and served in key roles for leading banks within the GCC and across the globe. In his current role, he has led the conceptualization and implementation of a multi-dimensional bank wide Enterprise Risk Management (ERM) framework.

Vijay holds an MBA in Finance from Osmania University, India, is a keynote speaker at Risk Management events and has conducted a number of training programs.


09

Samuel Verghese Chief Financial Officer

Areije Karim Al-Shakar Head of Development Services

Mariam Safdar Mohammed Head of Compliance & MLRO

Dana Abdulrahman Alsendi Head of Legal

Siddharth ChaudharyHead of Internal Audit

Farah Ayad RabeaHead of Digital Marketing

Isa Ahmed Al Doseri Head of Investment Division

11

Executive Management (continued)



Areije Karim Al-ShakarHead of Development Services

Joined BDB: 2010

Areije has extensive expertise in banking and entrepreneurship, gained from over 16 years of experience in the field. Prior to joining BDB in 2010 where she currently serves as Head of Development Services and also leads the Fund management team of Al Waha Venture Capital Fund of Funds, Areije served at Investcorp, Citibank, BNP Paribas and Lehman Brothers.

Areije holds a Bachelor of Commerce in Finance from Concordia University, a Master of Science in Public Policy and Management from the University of London, a Business Coach and Mentor certification from the Chartered Management Institute, UK, and is a Kauffman Fellow. Areije plays an active role in the development of the startup and entrepreneurial ecosystem regionally.

Samuel VergheseChief Financial Officer

Joined BDB: 2007

Samuel brings over three decades of experience, with 25 years of service in the banking sector. He Joined Bahrain Development Bank in 2007 as Senior Manager in the Financial Control division and served as the Head of Internal Audit from 2008 until his promotion to Chief Financial Officer in 2015. Prior to BDB, he held a number of key roles in institutions regionally and globally including Chief Accountant for Oman Development Bank, General Manager (Finance) at Kerala Financial Corporation, and Chief Manager (Corporate Financial Management) for The South Indian Bank Ltd.

Samuel holds a Bachelor of Commerce degree from the University of Calicut, India; and an FCA from the Institute of Chartered Accounts of India.

Siddharth Chaudhary

Head of Internal Audit

Joined BDB: 2018

Siddharth offers more than 17 years of experience in internal audits, assurance engagements and other financial advisory services. Prior to his appointment at BDB in 2018, he worked with SICO in the Internal Audit Department, served BDO’s Risk Consulting division where he led risk-based internal audits for various financial service companies, firms, and other entities, and had also worked at Ernst and Young India.

Siddharth holds a Master of Commerce degree from India, is a Chartered Accountant, a Certified Internal Auditor, and a member of the Institute of Internal Auditors (USA).

Farah Ayad RabeaHead of Digital Marketing

Joined BDB: 2021

Farah brings with her an extensive knowledge and experience in digital banking and marketing. Prior to joining BDB, Farah held the position of Deputy Manager of Campaigns and Acquisition at ila Bank - Arab Banking Corporation, she also worked at Bank of Bahrain and Kuwait as part of the E-channels and Automation team focusing on mobile systems and digitization projects.

Farah holds a bachelor’s degree in Computer Science with first class honors from the University of Bahrain, alongside several internationally accredited professional certifications in digital marketing, fintech and project management.

Isa Ahmed Al DoseriHead of Investment

Joined BDB: 2011

Isa brings vast experience in venture capital, private equity, investments, retail, operations and financial control gained from a career that spans over more than 12 years. Isa joined BDB in 2011 in his current role as Head of Investment Division. He manages the bank’s investment and properties portfolio. He also holds board, membership on several boards including Al Waha Venture Capital Fund Company, Bahrain Agriculture Foods Company, Bahrain Business Incubator Center, The Bahrain Business - Angels Company - Tenmou, Food Corp WLL. and Al Dar Wood Furniture Manufacturing WLL.

Isa is a BSc honors graduate majoring in Accounting and Finance from Ahlia University, a Certified Public Accountant from the State of Colorado, USA, and a Series 79 Investment Banking certificate holder accredited by the Central Bank of Bahrain.

Mariam Safdar MohammedHead of Compliance & MLRO

Joined BDB: 2010

Mariam has over 18 years of extensive experience in compliance, risk management, credit review & analysis. Previous to her appointment with the BDB in 2010, Mariam served various prestigious financial institutions including Al Baraka Islamic Bank, BMI Bank, Bahrain Credit and Bahrain National Holding company.

Mariam holds a bachelor’s degree in business management from the University of Bahrain, a Master’s degree in Business Administration from New York Institution of Technology, an Advanced Diploma in Islamic Banking (CIMA) and an ICA International Diploma in Governance, Risk & Compliance. Mariam is also a member of ACAMS Organization.

Dana Abdulrahman AlsendiHead of Legal

Joined BDB: 2018

Dana is a qualified Bahraini lawyer with over a decade of legal experience. Prior to joining BDB in 2018, Dana was the Assistant Legal Advisor and Board Secretary at Gulf Air, and previous to this was the Legal Counsel and Assistant to the Board Secretary in the Legal and Corporate Affairs Department at Aluminum Bahrain (ALBA), and before this served as an Associate in the Haya Rashed Al Khalifa Law Firm.

Dana holds a Bachelors’ Degree in Law (LLB) from the University of Leicester (UK) and a Masters’ Degree (LLM) in International Corporate Governance and Financial Regulation from the University of Warwick (UK).



In line with BDB’s digital transformation agenda, the Bank’s leadership and management structure was enhanced through filling key management gaps with senior Bahraini talent in the areas of Technology, Credit, Human Resources and Digital Marketing.

It is my pleasure to present to you the Annual Report of Bahrain Development Bank Group for the year ended December 31, 2020. In 2020, we experienced economic and social upheaval on a scale never experienced in living memory due to the pandemic impacting every aspect of life and economies.

The COVID-19 pandemic severely impacted our customers, businesses and the communities we serve. BDB has been at the forefront of helping SMEs and small businesses to mitigate the impact of the pandemic, working with the government in all the alleviating measures that the leadership of the country initiated. The bank became the focal point for assisting SMEs under the Government’s Liquidity Support Fund and Sports Club initiatives and is playing a crucial role in supporting the economy and mitigating the impact of the pandemic on businesses.

Against this backdrop, BDB demonstrated a resilient performance for 2020, recording a net profit of BD 563k, resulting in the second consecutive year of strong profits.

During the year, the bank significantly stepped up its financing activity to support SMEs with total disbursements increasing by 179% to BD 105.8 million (2019 BD 37.9 million). This steep increase has been achieved through a concerted effort to streamline our internal processes and organizational architecture and the extraordinary efforts put in by the entire BDB team.

BDB grew its overall financing portfolio to BD 162 million while maintaining a healthy Capital Adequacy Ratio (CAR) of 64%.

As part of ensuring inclusive development and with ongoing support of Tamkeen, the bank also continued to offer financial services under the exclusive ‘BDB-Riyadat Scheme’ - which aims to support women owned enterprises and help them

Group CEO’s Statement



grow their businesses. An amount of BD 1.067 million was disbursed during the year under this scheme.

Alongside the positive financial results in 2020, we are also well on our way to the cloud with several workloads already migrated to Cloud over 2020. We have also kicked off the digital transformation project ‘Ru’ya’ where the bank has selected the Tata Consultancy Services (TCS) BaNCS Global Banking Platform, enabled with APIs and cognitive tools such as Artificial Intelligence (A.I.) and analytics, facilitating the launch of one of the region’s first digital state-of-the-art SaaS-based core banking system completely on the Cloud. The launch of ‘Ru’ya’ will further strengthen BDB’s position as Bahrain’s premier SME Bank, thus streamlining the bank’s offering of innovative products and services to the SMEs sector through a world-class omni-channel platform. This visionary project aims to put the Kingdom of Bahrain at the forefront of digital banking, with a one-of-a-kind cloud-based core banking system.

In line with BDB’s digital transformation agenda, the bank’s leadership and management structure was enhanced with the filling in of key management gaps with senior Bahraini talent in the areas of Technology, Credit, Human Resources and Digital Marketing.

BDB today is fit for growth with a complete overhaul of our customer, risk and compliance management processes including risk ratings for all borrowers, institutionalization of sales culture, a performance measurement system based on sales and risk metrics, better awareness of Compliance, Personal Data Protection Law (PDPL), Anti-money laundering (AML) requirements and effective client monitoring and remedial processes.

As a team, we continue to build on the foundation that will help us deliver a better, stronger, and more efficient performance

over time. Our ongoing organizational, operational and digital transformation will make us better -able- to meet the needs of our customers in the ever-changing environment.

In the coming months and years, our aim is to be a more agile and customer-centric bank - for our customers and the Bahraini communities we serve.

I would like to take this opportunity to extend my sincere thanks and gratitude to His Majesty King Hamad bin Isa Al Khalifa, the King of the Kingdom of Bahrain, His Royal Highness Prince Salman bin Hamad Al Khalifa, the Crown Prince and Prime Minister for their continued support and wise leadership that has carried us through a turbulent year. I would also like to thank the Chairman and Board of Directors of the Bank for their continued support and guidance.

My gratitude also goes to the Ministry of Finance and National Economy, The Economic Development Board, Bahrain Chamber of Commerce and Industry, The Ministry of Industry, Commerce & Tourism as well as our strategic partners Tamkeen, National Initiative for Agricultural Development and the Supreme Council for Women for their guidance.

I would also like to express my thanks and appreciation to the Executive Management and team members of Bahrain Development Bank Group who have spared no efforts to achieve our development mandate.


Capital Adequacy Ratio

64%BDB maintained a healthy Capital Adequacy Ratio (CAR) of 64%.

Total Disbursements

179%During the year, the bank significantly stepped up its financing activity to support SMEs with total disbursements increasing by 179% to BD 105.8 million (2019 BD 37.9 million).


NURTURING GROWTH THROUGHTECHNOLOGYBahrain Development Bank is accelerating its journey in the progression of its internal technologies. The first of these exciting new improvements include the digital transformation of both the bank’s core-banking system along with the soon-to-be launched new digital interface of the BDB. These new technological updates will make the BDB one of the first banks to be built on a state-of-the-art SaaS-based core banking system on the cloud.



TECHNOLOGYUpgraded IT Infrastructureto maintain strong momentum with growth, transformation and innovation.

Automation and Digitization of Servicesto become an industry leader and trusted partner for entrepreneurs and SMEs in the Kingdom of Bahrain.

Digital Communications Channelsto enable communicating with customers and expanding the brand’s reach and digital footprint.

Management Review


Business BankingSMEs are vital drivers of economic growth and essential to build a healthy and vibrant economy. In line with its mandate, Bahrain Development Bank is strengthening its support to the sector in terms of financing, development and effective co-ordination with the government entities of the Kingdom of Bahrain, with an aim to create a robust underlying ecosystem for SMEs.

The COVID-19 pandemic and the necessary measures of confinement, including but not limited to the lockdown of some countries and travel bans, have created one of the most challenging environments for the SMEs sector in modern history and has severely disrupted many existing supply chains. The impact on supply and demand during the pandemic has had serious economic effects on the private sector, especially for SMEs.

Another impact of the pandemic is the drastic loss of companies revenues which has an immediate impact which made it difficult for SMEs to keep the business functioning. Liquidity for SMEs has also been compromised by reducing spending during the uncertain economic situation and restricting on business operations in various sectors, such as retail, tourism and hospitality. The fear of contagion of consumers has also contributed to SMEs liquidity shortages that have further restricted the sustainability of these companies.

In addition to the usual products and support extended to SMEs, during the pandemic, Bahrain Development Bank was mandated by The Ministry of Finance and National Economy to process SMEs requests under the Liquidity Support Funds, where another BD 50 million was allocated to BDB over the BD 30 million that was allocated to BDB last year.

The Bank looks forward to participate more actively in providing financing solutions to the SMEs segment, and remains committed to render all possible assistance to SMEs in the various stages of their business especially when they are facing challenges due to the pandemic, and enable them to overcome all difficulties to conduct their business smoothly.



The Bank significantly stepped up its financing activity to support SMEs during the year with total disbursements increased by 179% to BD 105.8 million compared to BD 37.9 million in 2019.

Furthermore, in compliance with the guidelines received from CBB, BDB deferred instalments for qualifying customers for up to 10 months to assist SMEs to maintain healthy liquidity in these uncertain times. The first deferral was for 6 months where the bank did not charge any interest/ profit or fees.

The financing made by the Bank is expected to create additional 996 jobs and contribute to incremental exports of BD 0.8 million, import substitution of BD 0.6 million and value addition of BD 14.7 million over the next two years.

Moreover, the Bank continues its financial assistance to other primary sectors like fisheries and agriculture, as well as professional services such as doctors, training and consultancy firms, etc. Thus enabling the clients to acquire gainful self-employment and earn their livelihood. The Bank also contributes towards enhancing the level of education of Bahraini youth through its Education Finance Scheme. The Bank looks forward to participating more actively in providing financing solutions to the SMEs segment, and remains committed to render all possible assistance to SMEs in various stages of their business that are facing difficulties or challenges due to the pandemic and enable them to overcome all those difficulties and conduct business smoothly. Our strategy of supporting Bahraini youth and women to start their own entrepreneurship ventures shall continue with a strong focus and dedicated efforts.

Liquidity Support Fund

BD 50m During 2020, BDB was allocated an additional BD 50 million of the Liquidity Support Funds, over the BD 30 million that was allocated to the Bank last year.

Financing Activity

BD 105.8mThe Bank significantly stepped up its financing activity to support SMEs during the year with total disbursements increasing by 179% to BD 105.8 million.

Investment Division The Investment Division plays a major role in driving the overall mission of the bank to support SMEs through managing the bank’s private equity and start-up portfolio. The Division plays a very active role in supporting the bank’s investee companies to achieve their key goals and objectives.

The bank’s investments are based on key criterion that is mainly focused on contributing to the development of the economy of the Kingdom of Bahrain with a particular focus on the development of SMEs within the Kingdom. The Banks investment portfolio is spread across several industries including health care, food security, manufacturing, venture capital funds, transportation, services, micro-finance and financial institutions in addition to technology and technology enabled startups. The Investment Division invests in companies throughout all stages of the business cycle that include startups, scaleups, SMEs and other strategic investments.

Information Technology Despite the challenges of the year 2020, digital transformation and technology initiatives have accelerated on multiple fronts during the year. With a focus toward enabling the business to continue efficiently, Office 365 is implemented as well as a cloud workstation to empower employees to work safely from home. In addition, the cloud migration of the bank workload to AWS was completed successfully.

The bank kicked off the digital transformation journey by signing with Tata Consultancy Services for a full-fledged banking technology stack that will help BDB to transform customer engagement through the delivery of contextual experiences. The bank has selected the front-to-back digital offering, TCS BaNCS

Management Review(continued)


Global Banking Platform, enabled with APIs and cognitive tools such as AI and analytics. The platform will help BDB meet the unique needs of the small and medium business segment spanning digital banking channels, origination, core banking, trade finance, treasury and supporting services like AML and reconciliations. It will also interface with Customer Relationship Management (CRM), sales, risk management and other enterprise functions. The full stack will be hosted in AWS and provided as a SaaS-based core banking system.

Regulatory compliance and participation in the national projects were also an area of focus in 2020, the bank managed to successfully achieve all mandates and implemented required services like wage protection system, Account Balance in BenefitPay, Bahrain Cheque Truncation System (BCTS) upgrade and direct debit features. Moreover, the technology played an important role in facilitating the loan deferment facility provided twice during 2020 and the automation of the repayment schedule has helped the business to accomplish the deferment process in a timely manner.

Information Security remained a key focus area and further measures were taken to strengthen the security of the Bank’s IT system. On-going E-learning Security training and awareness sessions on information security were also provided to employees to ensure that customers’ information and systems are highly secured and protected against cybercrime.

Disaster Recovery and Business Continuity Plan BDB has placed a Disaster Recovery and Business Continuity Policy and plan, which ensures that BDB continues its critical activities following any disastrous event. Disaster Recovery Sites has been set up within the Kingdom of Bahrain and the business continuity site is also equipped with the required infrastructure. In 2020, DR and BCP test has been conducted successfully as per the CBB requirement to test the critical systems of BDB. In addition, the cloud-hosted services both in AWS and Azure were tested successfully for the first time during 2020 DR test.

Operations The department was actively engaged in supporting lending activities for our customers who were experiencing financial hardship caused by the COVID-19 pandemic by ensuring to expedite disbursements under the Liquidity Support Funds Scheme as mandated by the Ministry of Finance and National Economy and also ensuring operational execution of payment deferral programs in line with the guidelines received from CBB.

In addition to the above, the Bank has taken important steps in aligning its operations and streamlining its processes to achieve maximum impact towards a positive customer experience and ensure compliance with regulatory changes as below:

1. Ongoing Know Your Customer (KYC) review for due diligence and compliance purpose.

2. Updated customer forms to comply with CBB guidelines.

3. Obtained & updated PDPL status of customers to ensure compliance with PDPL regulations.

4. Upgraded BCTS system to ensure compliance with CBB & Benefit guidelines.

5. Updated department policies and procedures in line with revised guidelines and ensure smooth processing of transactions.

Despite of the challenges of the year 2020, Digital transformation and technology initiatives accelerated on multiple fronts during the year.



Administration The administration department plays an important role in coordinating daily operational functions, streamlining management systems, monitoring budgets, improving business and ensuring successful completion of projects to upgrade BDB facility. The department constantly pursues innovative means for cost optimization while maintaining efficiency. The department maintains transparency toward all service providers, which includes a new Vendor Management policy to achieve optimal support for all departments of the bank.

During 2020, administration department successfully completed 48 projects to upgrade BDB facilities in different divisions including security, safety, telecommunications, heating, ventilation and air conditioning (HVAC), etc.

Moreover, 2020 was a different year due to COVID-19 implications, however, BDB has successfully overcome the pandemic as we gradually increased the number of protective measures and took the necessary precautions while minimizing disruption and ensuring the health and safety of our customers and staff in order to prevent further transmission and reduce the impacts of the outbreak as per the disinfection guidelines from CBB and the Ministry of Health.

Compliance

BDB is committed to comply with all applicable laws and regulations across all of its business activities, including the requirements of the Central Bank of Bahrain and adapting any best practice compliance principles. The bank has acquired a Regulatory Compliance solution to regularly monitor and assess the adequacy and effectiveness of the systems and controls in place on a risk-based approach including the actions taken to address any deficiencies in one platform in order

to comply with the standards and requirements. The Compliance Department is independent and reports to the Board Audit and Governance Committee.

The bank’s policies and procedures prohibit and actively prevent, detects and report any money laundering and terrorist financing through implementing appropriate systems, processes and control to combat these prohibited activities. The AML framework is routinely evaluated, updated and enhanced in order to reflect changes in business activities, as well as applicable supervisory standards and legal requirements. The bank adopts rigorous due diligence measures to ensure that the financial activities of BDB customers are in accordance with the guidelines issued by the regulatory authorities to ensure more transparency and the building of a solid profound customer profile.

Human Resources BDB has initiated its Digital Transformation journey. As in any organization, the main pillar of any business strategy is its People Strategy. The Organizational Transformation journey is well on its way. The bank has started to carve its People & Reward strategy with a focus on creating an optimum operating model that moves away from its traditional structure to an agile model that is fully digitized helping deliver its key mission of becoming a market leader in Bahrain for multiple digital products. The Human Capital Department plays a key role in fostering and cultivating a high-performing talent & culture with the aim to become an employer of choice. BDB invests in talent who in turn invests in the economy, supporting the growth and success of Bahraini-owned businesses.

Organization Chart

InternalAudit

Board Audit & GovernanceCommittee

DMLRO DPO

Fisheries&

Agriculture

BOARD OF DIRECTORS

Operations /Customer Service

BusinessDevelopment

Administration DevelopmentDivision

Main Branch

Riyadat Branch

Hidd Branch

Sitra Branch

Financial Planning & Taxation

FinancialControl

Treasury

Remedial Management & Collection

BBICChairman

& ManagingDirector

Chief ExecutiveOfficer

BankingDivision

ChiefFinancial Officer

SupportDivision

Chief BusinessDevelopment

OfficerInvestmentHuman

ResourcesMarketing

& Corporate Communications

Credit RiskManagement

Unit

InformationTechnology

Risk Management

Chief TechnologyOfficer

Sharia’aReviewer

Sharia’aBoard

Board Risk Committee

ComplianceOfficer/MLRO

BoardInvestment

& CreditCommittee

BoardNomination

& RemunerationCommittee

Credit Administration

& Control

CreditReview

Legal

CreditDivision

BoardSecretary


Organization Chart as on 31.12.2020

FINANCIAL STATEMENTS


BUSINESS REVIEW CORPORATE GOVERNANCE

(BDB) is committed to full compliance with the values and the best international practices/standards of personal and professional ethics. Fulfilling this commitment requires that everything done by the group, collectively or individually, is consistent with the highest ethical and professional standards.

BDB’s Board Directors have validated the Corporate Governance principles and practices in the policy documents, (1) Commitment by Board of Directors & Management of BDB Group to the Code of Conduct and (2) the Code of Ethics & Business Conduct, which is endorsed by BDB employees. The bank has adopted Code of Conduct and other internal policies and guidelines designed to guide all employees and directors through best practices in compliance with all laws, rules and regulations that govern the bank’s business operations. The Code of Conduct contains rules on conduct, ethics on avoiding conflict of interest applicable to all the employees and directors of the bank. The bank has an Annual Declaration for employees and directors, whereby each member is responsible to disclose any material interest related to business transactions and agreements.

BDB has no individuals who are occupying controlled functions and who are relatives of any approved persons.

BDB’s Board of Directors, nominated by a Royal Decree, presently comprises of eight non-executive directors, including the Chairman. On joining the Board, all Directors are provided with a Directors’ Induction File that includes the bank’s Memorandum and Articles of Association, the Charters of the Board and its subcommittees, the latest annual report, the Corporate Governance and other key policies, and the bank’s strategy document. Induction sessions are also held with the Chairman and Chief Executive Officer, which focuses on a broad overview of the bank, its direction, challenges and opportunities may be supplemented by sessions on the special characteristics of development banking and its role in economic development. Select meetings may then be arranged with members of the senior management on an as needed basis, as well as a tour of the bank’s facilities.

The Board is guided by its charter framed in accordance with applicable regulations. The Board establishes the objectives of the bank, provides guidance & approves the strategy, budgets for achievement of the bank’s objectives, adopts and reviews the systems and controls framework, monitors the implementation of strategy by the management, overall group & management performance, ensures accurate preparation along with disclosure

of the financial statements, monitors conflicts of interest in preventing improper related party transactions. The Board also assists in securing funding from government and semi-government institutions and continues to focus on long term strategic issues; growth and diversification of BDB group’s activities, and the achievement of its vision and mission.

The Board of Directors is assisted by following Board Committees: (1) Nomination & Remuneration Committee (NRC), (2) Audit & Governance Committee, (3) Risk Committee (BRC), (4) Investment & Credit Committee (BICC), and (5) Sharia’a Supervisory Board. The members of Senior Management regularly attend Board & Committee meetings. The responsibilities of these committees for oversight are governed by their respective charters, terms of reference and functions under its supervision that are reviewed and updated periodically. The NRC assists the Board in the implementation of sound remuneration and HR practices, the Audit & Governance Committee assists the Board in carrying out its duties regarding the integrity of the bank’s financial reporting system; the adequacy of the bank’s internal control processes; the performance of independent auditors and internal audit function; the independent auditor’s qualifications & independence and the bank’s compliance with legal obligations. The Board Risk Committee (BRC) develops the Board’s risk appetite statement and ensures an appropriate risk management and reporting framework is in place to allow the implementation and monitoring of the bank’s risk profile and alignment of this to its risk appetite. BRC is additionally responsible for the appointment and remuneration determination of the Chief Risk Officer (CRO) and the development of the bank’s business continuity and disaster recovery plans. The BICC reviews credit and investment proposals, exercises oversight of credit and investment related activities, reviews and recommends the bank’s business strategy and operational plan, reviews and approves appropriate asset allocation strategy and evaluates the investment and credit portfolio of the bank. The Sharia’a Supervisory Board, comprising three Islamic scholars, provides guidance, reviews and supervises the Bank’s Islamic financing activities to ensure that they are in compliance with Islamic Sharia’s rules and principles.

In addition, the Nomination & Remuneration Committee, Investment & Credit Committee, Audit & Governance Committee and Risk Committee also assists the Board in conducting self-evaluation of the Board & Committees achieving a high level of involvement and understanding among Board members of its roles and responsibilities, with suggestions for further improvements.

Corporate Governance


BDB Disclosure on HC Module

Status of compliance with CBB’s Corporate Governance guidelines (high-level controls module)

Banks are required to comply with the High-level Controls (HC) Module of the CBB Rulebook. The HC Module contains both Rules and Guidance; Rules must be complied with, but Guidance may either be complied with or non-compliance to be explained by way of an annual report to the shareholders and to the CBB. The bank has not complied with certain guidance under HC-4 pertaining the appointment of the Board of Directors. This is due to the fact that the members of Board of Directors of the bank were appointed as per the Royal Decree resolution No. 5 of 2019, issued on 28th November 2019.

The section HC-5.3 states that members of the remuneration committee must have independence of any risk-taking function or committees. The bank is not complying with this requirement as two (2) Remuneration & Governance Committee members Mr. Tariq Al Saffar and Ms. Tala Fakhro are also represented on the Investment & Credit Committee of the Board. This has been permitted by CBB in view of the fact that the Board members are limited to eight (8) who were appointed through a Royal Decree resolution and, to meet independency, more members should be appointed which is not deemed practical given the current Board structure which is commensurate with the bank’s size and activities.

Board & Board Committee Meetings and Attendance

Details of meetings held during 2020 and attendance of directors are as follows:

Board of Directors

No. Name 24 Feb 11 May 9 Aug 15 Nov

1. Khalid Al Rumaihi (Chairman) check check check check

2. Sabah Khalil Al Moayyed check check check check

3. Tariq Jaleel Al Saffar check check check check

4. Tala Abdulrahman Fakhro check check check check

5. Marwan Khalid Tabbara check check check check

6. Ghassan Ghaleb Abdulaal check check check check

7. Maryam Adnan Al Ansari check check check check

8. Marwa Khaled AlSaad check check check check

Corporate Governance (continued)




Board Audit & Governance Committee (BAGC)

No. Name of the Director 16 Feb 5 May 28 Jul 27 Oct

1. Ghassan Ghaleb Abdulaal check check check check

2. Maryam Adnan Al Ansari check check check check

3. Marwa Khaled AlSaad check check check check

Board Risk Committee

No. Name of the Director 16 Feb 18 Mar 3 Jun 5 Aug 4 Oct 19 Oct

1. Marwan Khalid Tabbara check check check check check check

2. Maryam Adnan Al Ansari check check check check check check

3. Ghassan Ghaleb Abdulaal check check check check check

Board Investment & Credit Committee

No. Name of the Director 3 Feb 16 Mar 31 Mar 12 May 11 Jun 12 Jul 5 Aug 23 Sep 29 Nov

1. Sabah Khalil Al Moayyed check check check check check check check check check

2. Marwan Khalid Tabbara check check check check check check check check check

3. Tariq Jaleel Al Saffar check check check check check check check check check

4. Tala Abdulrahman Fakhro check check check check check check check check check

Board Nominations and Remuneration Committee

No. Name of the Director 18 Feb 5 Apr 20 May 2 Jul 2 Sep 13 Oct 30 Dec

1. Tariq Jaleel Al Saffar check check check check check check check

2. Tala Abdulrahman Fakhro check check check check check check check

3. Marwa Khaled AlSaad check check check check check check check

Shari’a Board Meetings and Attendance

No. Name of the Director 5 Jan 12 Feb 29 Apr 22 Sep 6 Oct

1. Sh. A. Nasser AlMahmood check check check check check

2. Dr. Mohammed Burhan Arbouna check check check check check

3. Dr. Omar Abdulaziz Alaani check check check check check

Corporate Governance (continued)


Remuneration Report

BDB follows a total compensation approach to remuneration for rewarding performance as well as providing competitive fixed remuneration for attracting and retaining talents. It is the bank’s basic compensation philosophy to provide a competitive level of total compensation to attract and retain qualified and competent employees. These elements support help achieve of the objectives through balancing rewards for both, short-term results and long-term sustainable performance. The strategy is designed to share the success, of the bank and to align employees’ incentives with the risk framework and risk outcomes. The quality and long-term commitment of all of the employees are fundamental to the success of the bank.

The bank, therefore aims to attract, retain and motivate the very best people who are committed to maintaining a career with the bank, and who perform their role in the long-term interests of its shareholders. The bank adopted regulations concerning sound remuneration practices issued by the Central Bank of Bahrain. The revised policy framework and incentive components were approved by the shareholders in the Annual General Meeting. Unlike commercial banks, BDB is a “not-for-profit” development banking institution, with core objective of supporting economic development of Bahrain in line with Bahrain 2030 Vision. The bank’s remuneration policy has no variable components as per the contractual obligation and the performance bonus will be paid at the discretion of the Board of Directors. There is no separate policy for business and controlling staff of the bank. As such, the need to “defer” variable remuneration does not apply in case of BDB. Consequently, there are no “claw-back” or “malus” stipulations as well. The exceptions were approved by the Central Bank of Bahrain. The Remuneration Policy for all staff (including the approved persons) consist of fixed and variable remunerations in the form of cash only. Bonus entitlement including approved persons are aligned to the bank’s performance, department and individual performance, but in all cases, it shall be made at Bank’s sole discretion.

Details of Remuneration Paid for the Financial Year Ended 2020

Categories No.

Fixed Remuneration (BD)

Variable Remuneration

(BD)

Total(BD)

Salaries and Wages

Other Benefits/

Allowances Total

Performance Bonuses (in cash)

1. Members of the Board 11 91,900 91,900 91,900

2. Approved Persons (not incl in 1,3, to 7) 9 456,344 126,471 582,816 47,330 630,146

3. Approved Persons in Risk Management, Internal Audit, Operations, Financial Control, AML, Compliance Functions

6 204,590 82,487 287,077 12,049 299,126

4. Employees Engaged in Risk taking activities (Business Areas)

43 664,186 140,145 804,331 33,299 837,630

5. Employees other than approved persons engaged in functions under 3

23 286,618 58,644 345,262 22,144 367,405

6. Other Employees 80 1,146,004 238,940 1,384,944 82,487 1,467,431

7. Outsourced Employee/Service providers(engaged in risk taking activities)

Total 172 2,757,743 738,588 3,496,331 197,308 3,693,639

* The amount paid as sitting fees to the Board Nomination and Remuneration Committee during the year 2020 was BD 19,200/- (2019: BD 12,800/-).

The details of remuneration paid to auditors for audit and other assignments are available at the BDB corporate office.



Details of Remuneration Paid for the Financial Year Ended 2019

Categories No.

Fixed Remuneration (BD)

Variable Remuneration

(BD)

Total(BD)

Salaries and Wages

Other Benefits/

Allowances Total

Performance Bonuses (in cash)

1. Members of the Board 11 73,450 0 0 0

2. Approved Persons (not including 1,3, to 7) 7 416,367 121,562 537,929 135,550 673,479

3. Approved Persons in Risk Management, Internal Audit, Operations, Financial Control, AML, Compliance Functions

6 191,580 80,973 272,553 58,750 331,303

4. Employees Engaged in Risk taking activities (Business Areas)

41 549,621 118,728 668,349 131,138 799,487

5. Employees other than approved persons engaged in functions under 3

23 255,670 56,890 312,560 58,322 370,882

6. Other Employees 80 988,086 222,387 1,210,473 227,962 1,438,435

7. Outsourced Employees/Service providers (engaged in risk taking activities)

Total 168 2,401,324 600,540 3,001,864 611,722 3,613,586

Deposit Protection Scheme:

Deposits held with the bank’s Bahrain operations are covered by the Regulation Protecting Deposits and unrestricted investment accounts issued by the Central Bank of Bahrain in accordance with Resolution No (34) of 2010. The scheme applies to all eligible accounts held with the bank subject to specific exclusions, maximum total amount entitled and other regulations concerning the establishment of a Deposit Protection Scheme and a Deposit Protection Board.


Notes to the Consolidated Financial Statements (Continued)

As at 31 December 2020

Contents37 Corporate Information38 Independent Auditors’ Report to the Shareholders40 Consolidated Statement of Financial Position41 ConsolidatedStatementofProfitorLoss42 Consolidated Statement of other Comprehensive Income43 Consolidated Statement of Changes in Equity44 Consolidated Statement of Cash Flows45 Notes to the Consolidated Financial Statements

Financial Statements 2020


FINANCIAL STATEMENTSCORPORATE GOVERNANCESTRATEGIC REPORT


Corporate Information

Commercial Registration No. 26226 obtained on 20 January 1992

Directors Mr. Khalid Al Rumaihi – Chairman

Ms. Sabah Khalil Almoayyed - Board Member

Mr. Tariq Jaleel Al Saffar – Board Member

Mr. Marwan Khalid Tabbara – Board Member

Ms. Tala Abdulrahman Fakhro – Board Member

Mr. Ghassan Ghaleb Abdulaal – Board Member

Ms. Maryam Adnan Al Ansari – Board Member

Ms. Marwa Khaled Al Saad – Board Member

Registered Office Building 170

Road 1703

Diplomatic Area

P.O. Box 20501

Manama

Kingdom of Bahrain

External Auditors Ernst & Young

P.O. Box 140

Manama

Kingdom of Bahrain


Independent Auditors’ Report to the ShareholdersBahrain Development Bank B.S.C.(c),Manama, Kingdom of Bahrain

Report on the Audit of the Consolidated Financial Statements

OpinionWehaveaudited theaccompanyingconsolidated financial statementsofBahrainDevelopmentBankB.S.C. (c) (the “Bank”) and itssubsidiaries(together“theGroup”),whichcomprisetheconsolidatedstatementoffinancialpositionasat31December2020,andtheconsolidatedstatementsofprofitorloss,othercomprehensiveincome,changesinequityandcashflowsfortheyearthenended,andnotestotheconsolidatedfinancialstatements,includingasummaryofsignificantaccountingpolicies.

Inour opinion, the accompanyingconsolidated financial statementspresent fairly, in allmaterial respects, the consolidated financialpositionoftheGroupasat31December2020,anditsconsolidatedfinancialperformanceanditsconsolidatedcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asmodifiedbytheCentralBankofBahrain(“CBB”).

Basis for opinionWeconductedourauditinaccordancewithInternationalStandardsonAuditing(ISAs).Ourresponsibilitiesunderthosestandardsarefurther described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of theGroup in accordancewith the International Code of Ethics for Professional Accountants (including InternationalIndependenceStandards)(IESBACode)togetherwiththeethicalrequirementsthatarerelevanttoourauditoftheconsolidatedfinancialstatementsintheKingdomofBahrain,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirementsandtheIESBACode.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Other informationOther information consists of the information included in the Group’s 2020 Annual Report, other than the consolidated financialstatements and our auditor’s report thereon. The Board of Directors is responsible for the other information. Prior to the date of this auditors’report,weobtainedtheBoardofDirectors’reportwhichformspartoftheannualreport,andtheremainingsectionsoftheannual report are expected to be made available to us after that date.

Ouropinionontheconsolidatedfinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusion thereon.

Inconnectionwithourauditoftheconsolidatedfinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedfinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.Wehavenothingtoreportinthisregard.

Responsibilities of the Board of Directors for the consolidated financial statementsTheBoardofDirectorsisresponsibleforthepreparationandfairpresentationoftheconsolidatedfinancialstatementsinaccordancewithIFRSasmodifiedbytheCBBandforsuchinternalcontrolastheBoardofDirectorsdeterminesisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingtheconsolidatedfinancialstatements,theBoardofDirectorsisresponsibleforassessingtheGroup’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheBoardofDirectorseitherintendstoliquidatetheGrouportoceaseoperations,orhasnorealisticalternativebuttodoso.



Independent Auditors’ Report to the Shareholders (Continued)Bahrain Development Bank B.S.C.(c),Manama, Kingdom of Bahrain

Auditor’s Responsibilities for the audit of the consolidated financial statementsOurobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterial if, individuallyor intheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.

Aspartofanaudit inaccordancewith ISAs,weexerciseprofessional judgmentandmaintainprofessionalskepticismthroughouttheaudit. We also:

• Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheGroup’sinternalcontrol.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors.

• ConcludeontheappropriatenessoftheBoardofDirectors’useofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheGroup’sability tocontinueasagoingconcern. Ifweconclude that amaterial uncertainty exists,weare required todrawattention inourauditor’sreporttotherelateddisclosuresintheconsolidatedfinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditions may cause the Group to cease to continue as a going concern.

• Evaluatetheoverallpresentation,structureandcontentoftheconsolidatedfinancialstatements,includingthedisclosures,andwhethertheconsolidatedfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

• ObtainsufficientappropriateauditevidenceregardingthefinancialinformationoftheentitiesorbusinessactivitieswithintheGrouptoexpressanopinionontheconsolidatedfinancialstatements.Weareresponsibleforthedirection,supervisionandperformanceoftheGroup audit. We remain solely responsible for our audit opinion.

WecommunicatewiththeBoardofDirectorsregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.

Report on Other Legal and Regulatory Requirements

AsrequiredbytheBahrainCommercialCompaniesLawandVolume1oftheCentralBankofBahrain(CBB)RuleBook,wereportthat

a) theBankhasmaintainedproperaccountingrecordsandtheconsolidatedfinancialstatementsareinagreementtherewith;

b) thefinancialinformationcontainedintheReportoftheBoardofDirectorsisconsistentwiththeconsolidatedfinancialstatements;

c) wearenotawareofanyviolationsoftheBahrainCommercialCompaniesLaw,theCentralBankofBahrainandFinancialInstitutionsLaw, the CBB Rule Book (Volume 1 and applicable provisions of Volume 6) and CBB directives, or the terms of the Bank’smemorandum and articles of association during the year ended 31 December 2019 that might have had a material adverse effect on thebusinessoftheBankoronitsconsolidatedfinancialposition;and

d) satisfactoryexplanationsandinformationhavebeenprovidedtousbytheBoardofDirectorsinresponsetoallourrequests.

Partner’s registration no. 45

22 February 2021

Manama,KingdomofBahrain


Consolidated Statement of Financial PositionAs at 31 December 2020

Theaccompanyingnotes1to38formpartoftheseconsolidatedfinancialstatements.

Note2020

BD ’0002019

BD ’000

ASSETSCash and balances with Central Bank of Bahrain 7 2,568 1,976Placementwithbanksandotherfinancialinstitutions 7 3,722 14,850Islamicfinancingandloanstocustomers 8 146,630 76,731Investment securities 9 56,364 41,447Investment in associates 10 374 322 Investment properties 11 11,071 11,527Property and equipment 12 1,926 1,991Other assets 13 3,828 2,416TOTAL ASSETS 226,483 151,260

LIABILITIES AND EQUITYLiabilitiesTerm loans 14 35,304 42,293Deposits 15 118,030 34,918Other liabilities 4,444 4,723Total liabilities 157,778 81,934

EquityShare capital 16 65,000 65,000

Statutory reserve 17 1,186 1,186Other capital contribution 18 4,048 4,048Other reserves 1,146 654 Accumulated losses (2,656) (1,544)Equity attributable to owners of the Bank 68,724 69,344Non-controlling interest (19) (18)Total equity 68,705 69,326TOTAL LIABILITIES AND EQUITY 226,483 151,260

Khalid Al Rumaihi Ghassan Ghaleb AbdulaalChairman Director



Consolidated Statement of Profit or LossAs at 31 December 2020


Note2020

BD ’0002019

BD ’000

IncomeIslamicfinancingandinterestincome 19 8,536 8,234Islamicfinancingandinterestexpense 20 (1,213) (1,588)Net islamic financing and interest income 7,323 6,646Fee and commission income 21 452 357 Investment income 22 (416) (288)Rental income 1,054 1,706Other income 280 194 Total operating income 8,693 8,615

ExpensesStaff costs (4,749) (4,170)Other operating expenses (3,321) (3,472)Total operating expenses before allowance for expected credit losses (8,070) (7,642)Allowance for expected credit losses / provision - net 23 (112) 1 Total expected credit losses / impairment (112) 1 Net operating income 511 974 Shareofprofitfromassociates 10 52 63 Net profit for the year 563 1,037Net profit for the year attributable to:- Owners of the Bank 563 1,036- Non-controlling interest - 1

563 1,037

Khalid Al Rumaihi Ghassan Ghaleb AbdulaalChairman Director


Consolidated Statement of other Comprehensive IncomeFor the year ended 31 December 2020

2020BD ’000

2019BD ’000

Net income for the year 563 1,037Other comprehensive income:Items that will not be reclassified to profit or loss in subsequent periods:Changes in fair value through other comprehensive income reserve - equity instruments (5) (25)Items that will be reclassified to profit or loss in subsequent periods:Netunrealizedgainsincashflowhedges 411 -Changesinfairvalueofinvestmentsclassifiedasfairvaluethroughothercomprehensive income - debt instruments 86 829Total comprehensive income for the year 1,055 1,841

Total comprehensive income attributable to:- Owners of the Bank 1,055 1,840- Non-controlling interest - 1

1,055 1,841




Consolidated Statement of Changes in EquityFor the year ended 31 December 2020

Equity attributable to owners of the Bank

Total equity

BD ’000

Share capital

BD ’000

Statutory reserveBD ’000

Other capital

contributionBD ’000

Other reservesBD ’000

Accumulated losses

BD ’000Total

BD ’000

Non - controlling

interestBD ’000

As at 1 January 2020 65,000 1,186 4,048 654 (1,544) 69,344 (18) 69,326 Total comprehensive income

for the year - - - 492 563 1,055 - 1,055 Recognitionofmodificationlossnetofgovernmentgrant(note36) - - - - (1,675) (1,675) - (1,675)Minority interest movement - - - - - - (1) (1)As at 31 December 2020 65,000 1,186 4,048 1,146 (2,656) 68,724 (19) 68,705

Equity attributable to owners of the Bank

Total equity

BD ’000

Share capital

BD ’000

Statutory reserve

BD ’000

Other capital contribution

BD ’000

Other reservesBD ’000

Accumulated losses

BD ’000Total

BD ’000

Non - controlling

interestBD ’000

As at 1 January 2019 65,000 1,186 4,048 (150) (2,580) 67,504 (13) 67,491Total comprehensive income

for the year - - - 804 1,036 1,840 1 1,841Minority interest movement - - - - - - (6) (6)As at 31 December 2019 65,000 1,186 4,048 654 (1,544) 69,344 (18) 69,326



Consolidated Statement of Cash FlowsFor the year ended 31 December 2020

Note2020

BD ’0002019

BD ’000

OPERATING ACTIVITIESNetprofitfortheyear 563 1037Adjustments for:

Depreciation 1,114 854 Allowance for expected credit losses/ provision - net 23 669 440 ChangesinfairvalueofinvestmentsclassifiedasFVTPL 22 416 348 ChangesinrevaluationofloansanddepositsclassifiedasFVTPL (61) - Dividend income 22 - (77)Shareofprofitfromassociates 10 (52) (63)Lossonforeigncurrencytranslation 14 17 Operatingprofitbeforechangesinoperatingassetsandliabilities 2,663 2,556Changes in operating assets and liabilities:Placementwithbanksandotherfinancialinstitutionshavingoriginalmaturityof

more than 90 days 6,825 2,272Islamicfinancingandloanstocustomers (84,812) 9,908Other assets (1,607) 277 Deposits 96,094 (83)Other liabilities (143) (618)

Net cash flow from operating activities 19,020 14,312

INVESTING ACTIVITIESAdditions to property and equipment 12 (610) (1,217)Purchase of investment securities (60,658) (54,830)Proceeds from sale of investment securities 45,402 44,970Dividend income received 22 - 77 LiquidationofInvestmentSecurities 55 8 Net cash flow used in investing activities (15,811) (10,992)

FINANCING ACTIVITIESRepayment of term loans 14 (6,989) (8,314)Net cash flow used in financing activities (6,989) (8,314)

NET DECREASE IN CASH AND CASH EQUIVALENTS (3,780) (4,994)Cash and cash equivalents at beginning of the year 7,759 12,753CASH AND CASH EQUIVALENTS AT END OF THE YEAR 7 3,980 7,759

Additional information:Islamicfinancingandinterestreceived 7,991 8,038Islamicfinancingandinterestpaid 1,247 1,667

*TheadditiontopropertyandequipmentandotherliabilitiesofBD44thousand(31December2019:BD714thousand)isanon-cashitem.




Notes to the Consolidated Financial Statements31 December 2020

1. INCORPORATION AND ACTIVITIES

BahrainDevelopmentBankB.S.C.(c)(“theBank”or“BDB”)wasestablishedasaBahrainiclosedshareholdingcompanybyLegislativeDecree number 19 dated 11 December 1991 and commenced operations on 20 January 1992. The Bank is registered with the Ministry ofIndustry,CommerceandTourism(MOICT)undercommercialregistration(CR)number26226.TheBank’sregisteredofficeisintheKingdom of Bahrain. The Bank is operating as a retail bank with special waivers under a license issued by the Central Bank of Bahrain (“CBB”).ThemajorityshareholdingoftheBankisownedbytheGovernmentoftheKingdomofBahrain(“Parent”)andit’srelatedentities(“pensionfunds”).

ThecoreactivitiesoftheBankconsistofadvancingloansforprojectfinance,workingcapital,premisesandequipmentfordevelopingindustriesandservicesectorssuchasTourism,HealthandEducationintheKingdomofBahrain,andalsoinvestsinthesharecapitalofsuchentities.Aspartofthisactivity,theBankalsorendersmanagementconsultancyservicesandsubscribestoordinaryandpreferenceshares in locally incorporatedcompanies.Additionally, loansareadvanced forAgriculture,FisheriesandHigherEducationpurposes.Other activities of the Bank comprise making a direct contribution towards the economic development of the Kingdom of Bahrain.

Theoutbreakofcoronavirus(“COVID-19”)pandemicacrosstheglobehascauseddisruptiontobusinessandeconomicactivitiesanduncertainties in theglobaleconomicenvironment.ThefiscalandmonetaryauthoritieshaveannouncedseveralstimuluspackagestotheBank’scustomers,whichhasbeenimplemented.TheBankhasconsideredpotentialimpactsofthecurrentmarketvolatilityinthedeterminationofthereportedamountsoftheBank’sfinancialandnon-financialassetsandareconsideredtorepresentmanagement’sbestassessmentbasedoncurrentobservableinformation.Markets,however,remainvolatileandtherecordedamountsremainsensitivetomarketfluctuations.RefertosupplementaryFinancialInformationattheendoftheconsolidatedfinancialstatements.

TheseconsolidatedfinancialstatementswereauthorisedforissueinaccordancewitharesolutionoftheBoardofDirectorsoftheBankon 21 February 2021.

2. BASIS OF PREPARATION

2.1 Framework and basis of preparationTheconsolidatedfinancialstatementsoftheGrouphavebeenpreparedinaccordancewithapplicablerulesandregulationsissuedbytheCBB,includingCBBcircularsonregulatoryconcessionarymeasuresinresponsetoCOVID-19.Theserulesandregulations,inparticularCBBcircularOG/226/2020dated21June2020,requiredtheadoptionofallInternationalFinancialReportingStandards(IFRS)issuedbytheInternationalAccountingStandardsBoard(IASB),exceptfor:

(a)recognitionofmodificationlossesonfinancialassetsarisingfrompaymentholidaysprovidedtocustomersimpactedbyCOVID-19withoutchargingadditionalinterest,inequityinsteadofprofitorlossasrequiredbyIFRS9FinancialInstruments.AnyothermodificationgainorlossonfinancialassetsarerecognisedinaccordancewiththerequirementsofIFRS9.Pleaserefernote36forfurtherdetails;and

(b)recognitionoffinancialassistancereceivedfromthegovernmentand/orregulatorsinresponsetoitsCOVID-19supportmeasuresthatmeetsthegovernmentgrantrequirement,inequity,insteadofprofitorloss.Thiswillonlybetotheextentofanymodificationlossrecorded inequityasaresultof (a)above,andthebalanceamounttoberecognized inprofitor loss.AnyotherfinancialassistanceisrecognisedinaccordancewiththerequirementsofInternationalAccountingStandard20(“IAS20”).Pleaserefernote36forfurtherdetails.

Theaboveframeworkforbasisofpreparationoftheconsolidatedfinancialstatementsishereinafterreferredtoas‘IFRSasmodifiedbyCBB’.

Theaccountingpoliciesused inthepreparationofannualauditedconsolidatedfinancialstatementsof theGroupfor theyearended 31December 2019were in accordancewith IFRS as issued by IASB. However, except for the above-mentionedmodifications toaccountingpoliciesandthosedetailedinnote5thathavebeenappliedretrospectively,allotheraccountingpoliciesremainthesameandhavebeenconsistentlyappliedintheseconsolidatedfinancialstatements.Theretrospectiveapplicationofthechangeinaccountingpoliciesdidnotresultinanychangetothefinancialinformationreportedforthecomparativeperiod.

TheseconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheBankanditssubsidiaries.Allintra-grouptransactionsand balances including unrealised gains and losses on transactions between the Group companies have been eliminated on consolidation.

2.2 Statement of complianceTheconsolidatedfinancialstatementshavebeenpreparedinaccordancewiththeIFRSasmodifiedbytheCBBandinconformitywiththeBahrainCommercialCompaniesLawandtheCBBandFinancial InstitutionsLaw,theCBBRuleBook (Volume1andapplicableprovisionsofVolume6)andCBBdirectives, regulationsandassociated resolutions,and the termsof theBank’smemorandumandarticles of association.




2. BASIS OF PREPARATION (Continued)

2.3 Accounting conventionTheseconsolidatedfinancialstatementsarepreparedonahistoricalcostbasis,exceptforcertaininvestmentsecuritiescarriedatfairvaluethroughprofitorloss,orthroughothercomprehensiveincome,thathavebeenmeasuredatfairvalue.

TheseconsolidatedfinancialstatementsarepreparedinBahrainiDinarswhichisthefunctionalandpresentationcurrencyoftheBank.

2.4 Basis of consolidationTheseconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheBankanditssubsidiaries(the“Group”),allofwhichhave 31 December as their year end and are incorporated in the Kingdom of Bahrain. The Bank has the following principal subsidiaries:

Ownership Interest

Name 2020 2019 Principal Activity

Bahrain Business Incubator Centre S.P.C. 100% 100%Development and assistance to emerging Bahraini entrepreneurs

Bahrain Export DevelopmentCenterS.P.C.(BEDC)*

100% 100% Management consultancy activities

Al-WahaVentureCapitalFundCompany 99% 99%Trusts,FundsandSimilarFinancialEntities- Fund Company

MiddleEastCornerConsultancyCo.W.L.L.(MECC)** 28.60% 28.60%Consultancy to small and medium enterprises

* BEDC is in the process of liquidation.

**TheBank isexposed,orhasrights,tovariablereturnsfromits involvementwithMECC;andhastheabilitytoaffectthosereturnsthrough its power over MECC and thus is deemed as a subsidiary of the Bank. The bank’s petition for forced liquidation is pending with the court.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Control is achieved when the Group is exposed,orhasrights,tovariablereturnsfromitsinvolvementwiththeinvesteeandhastheabilitytoaffectthosereturnsthroughitspowerovertheinvestee.Specifically,theGroupcontrolsaninvesteeifandonlyiftheGrouphas:

a) Powerovertheinvestee(i.e.existingrightsthatgiveitthecurrentabilitytodirecttherelevantactivitiesoftheinvestee);

b) Exposure,orrights,tovariablereturnsfromitsinvolvementwiththeinvestee;and

c) The ability to use its power over the investee to affect its returns.

When theGroup has less than amajority of the voting or similar rights of an investee, theGroup considers all relevant facts andcircumstancesinassessingwhetherithaspoweroveraninvestee,including:

a) Thecontractualarrangementwiththeothervoteholdersoftheinvestee;

b) Rightsarisingfromothercontractualarrangements;and

c) The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases whentheGrouplosescontrolofthesubsidiary.Assets,liabilities,incomeandexpensesofasubsidiaryacquiredordisposedofduringthe year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of theGroupandtothenon-controllinginterests,evenifthisresultsinthenon-controllinginterestshavingadeficitbalance.Whennecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheiraccountingpoliciesintolinewiththeGroup’saccountingpolicies.Allintra-groupassetsandliabilities,equity,income,expensesandcashflowsrelatingtotransactionsbetweenmembersoftheGroup are eliminated in full on consolidation.





2. BASIS OF PREPARATION (Continued)

Achangeintheownershipinterestofasubsidiary,withoutalossofcontrol,isaccountedforasanequitytransaction.IftheGrouplosescontroloverasubsidiary,it:

a) Derecognisestheassets(includinggoodwill)andliabilitiesofthesubsidiary;

b) Derecognisesthecarryingamountofanynon-controllinginterests;

c) Derecognisesthecumulativetranslationdifferencesrecordedinequity;

d) Recognisesthefairvalueoftheconsiderationreceived;

e) Recognisesthefairvalueofanyinvestmentretained;

f) Recognisesanysurplusordeficitinprofitorloss;and

g) Reclassifiestheparent’sshareofcomponentspreviouslyrecognisedinOCItoprofitorlossorretainedearnings,asappropriate,aswould be required if the Group had directly disposed of the related assets or liabilities.

3. SIGNIFICANT ACCOUNTING JUDGMENT AND ESTIMATES

In theprocessof applying theGroup’s accountingpolicies,managementhasexercised judgment andestimates indetermining theamountsrecognisedintheconsolidatedfinancialstatements.Themostsignificantusesofjudgmentandestimatesareasfollows:

Going concern

TheGroup’smanagementhasmadeanassessmentof theGroup’sability tocontinueasagoingconcernand is satisfied that theGrouphastheresourcestocontinueinbusinessfortheforeseeablefuture.Furthermore,themanagementisnotawareofanymaterialuncertainties thatmay cast significant doubt upon theGroup’s ability to continue as a going concern. Therefore, the consolidatedfinancialstatementscontinuetobepreparedonthegoingconcernbasis.

Fair value of financial instruments

Wherethefairvaluesoffinancialassetsandfinancial liabilitiesrecorded intheconsolidatedstatementoffinancialpositioncannotbederivedfromactivemarkets,thesearedeterminedusingavarietyofvaluationtechniquesthatincludetheuseofmathematicalmodels.Theinputstothesemodelsarederivedfromobservablemarketdatawherepossible,butwhereobservablemarketdataisnotavailable,judgment is applied to establish fair values. These judgments include considerations of liquidity and model inputs such as volatility for longerdatedderivativesanddiscountrates,prepaymentratesanddefaultrateassumptionsforassetbackedsecurities.

Business model in classifying financial instruments

Inmakinganassessmentofwhetherabusinessmodel’sobjectiveistoholdassetsinordertocollectcontractualcashflows,theGroupconsidersatwhichlevelofitsbusinessactivitiessuchassessmentshouldbemade.Generally,abusinessmodelisamatteroffactwhichcan be evidenced by the way business is managed and the information provided to management.

Indeterminingwhetheritsbusinessmodelformanagingfinancialassetsistoholdassetsinordertocollectcontractualcashflows,theGroup considers:

a) Management’sstatedpoliciesandobjectivesfortheportfolioandtheoperationofthosepoliciesinpractice;

b) Management’sevaluationoftheperformanceoftheportfolio;and

c) Management’s strategy in terms of earning contractual interest revenues or generating capital gains.

Impairment of financial instruments

Assessmentofwhethercreditriskonthefinancialassethasincreasedsignificantlysinceinitialrecognitionandincorporationofforward-lookinginformationinthemeasurementofexpectedcreditlosses(ECL).Refertonote6forfurtherdetails.

ThemeasurementoftheECLforfinancialassetsmeasuredatamortisedcostandFVTOCIisanareathatrequirestheuseofcomplexmodelsandsignificantassumptionsaboutfutureeconomicconditions,creditbehavior(e.g.thelikelihoodofcustomersdefaultingandtheresultinglosses),estimationoftheamountandtimingofthefuturecashflowsandcollateralvalues.Theseestimatesaredrivenby anumberoffactors,changeswhichcanresultindifferentlevelsofallowances.




3. SIGNIFICANT ACCOUNTING JUDGMENT AND ESTIMATES (Continued)

TheGroup’sECLcalculationareoutputsofcomplexmodelswithanumberofunderlyingassumptionsregardingthechoiceofvariableinputsand their interdependencies.Anumberofsignificant judgmentsarealso required inapplying theaccounting requirements formeasuringECL,suchas:

a) TheGroupcalculatesPiTPDestimatesunderthreescenarios,abasecase,goodcaseandbadcase.AnappropriateprobabilityweightedECListhencalculatedbyassigningprobabilities,basedoncurrentmarketconditions,toeachscenario;

b) Determiningcriteriaforsignificantincreaseincreditrisk;

c) ChoosingappropriatemodelsandassumptionsforthemeasurementofECL;

d) Determinationofassociationsbetweenmacroeconomicscenariosand,economicinputs,suchasunemploymentlevelsandcollateralvalues,andtheeffectonPDs,EADsandLGDs;

e) Selectionandrelativeweightingsofforward-lookingscenariostoderivetheeconomicinputsintotheECLmodels;

f) EstablishingsegmentsofsimilarfinancialassetsforthepurposesofmeasuringECL;and

g) Determining relevant period of exposure with respect to the revolving facilities and facilities undergoing restructuring at the time of the reporting date.

4. NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE

Thestandardsandinterpretationsthatareissued,butnotyeteffective,uptothedateofissuanceoftheGroup’sconsolidatedfinancialstatementsaredisclosedbelow.TheGroupintendstoadoptthesestandards,ifapplicable,whentheybecomeeffective.

Classification of Liabilities as Current or Non-current - Amendments to IAS 1

InJanuary2020,theBoardissuedamendmentstoparagraphs69to76ofIAS1PresentationofFinancialStatementstospecifytherequirements for classifying liabilities as current or non-current.

The amendments clarify:

- What is meant by a right to defer settlement.

- That a right to defer must exist at the end of the reporting period.

- Thatclassificationisunaffectedbythelikelihoodthatanentitywillexerciseitsdeferralright.

- Thatonlyifanembeddedderivativeinaconvertibleliabilityisitselfanequityinstrument,wouldthetermsofaliabilitynotimpactitsclassification.

Theseamendmentsareeffectiveforreportingperiodsbeginningonorafter1January2023,withearlyapplicationpermitted.

Amendments to IAS 37 – Onerous Contracts: — Cost of Fulfilling a Contract

InMay2020,theIASBissuedamendmentstoIAS37Provisions,ContingentLiabilitiesandContingentAssetstospecifywhichcostsanentityneeds to includewhenassessingwhetheracontract isonerousor loss-making.Theamendmentsapplya ‘directly relatedcostapproach’.Thecoststhatrelatedirectlytoacontracttoprovidegoodsorservicesincludebothincrementalcosts(e.g.,thecostsofdirectlabourandmaterials)andanallocationofcostsdirectlyrelatedtocontractactivities(e.g.,depreciationofequipmentusedtofulfilthecontractaswellascostsofcontractmanagementandsupervision).Generalandadministrativecostsdonotrelatedirectlyto a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.

The amendments apply prospectively to transactions or other events that occur on or after 1 January 2022.

Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use

Theamendmentprohibitsentitiesfromdeductingfromthecostofanitemofproperty,plantandequipment(PP&E),anyproceedsofthesale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intendedbymanagement.Instead,anentityrecognisestheproceedsfromsellingsuchitems,andthecostsofproducingthoseitems,inprofitorloss.

Theseamendmentsareeffectiveforreportingperiodsbeginningonorafter1January2022,withearlyapplicationpermitted.





4. NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE (Continued)

Amendments to IFRS 3 – Reference to the Conceptual Framework

In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. TheamendmentsareintendedtoreplaceareferencetoapreviousversionoftheIASB’sConceptualFramework(the1989Framework)withareferencetothecurrentversionissuedinMarch2018(theConceptualFramework)withoutsignificantlychangingitsrequirements.

TheamendmentsaddanexceptiontotherecognitionprincipleofIFRS3toavoidtheissueofpotential‘day2’gainsorlossesarisingforliabilitiesandcontingentliabilitiesthatwouldbewithinthescopeofIAS37Provisions,ContingentLiabilitiesandContingentAssetsorIFRIC21Levies,ifincurredseparately.TheexceptionrequiresentitiestoapplythecriteriainIAS37orIFRIC21,respectively,insteadoftheConceptualFramework,todeterminewhetherapresentobligationexistsattheacquisitiondate.Atthesametime,theamendmentsadd a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date.

The amendments apply prospectively to transactions or other events that occur on or after 1 January 2022.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform – Phase 2 (IBOR reform phase 2)

On27August2020,theIASBpublishedInterestRateBenchmarkReform–Phase2,Amendmentsto IFRS9, IAS39, IFRS7, IFRS4and IFRS16.Withpublicationof thephase twoamendments, the IASBhascompleted itswork in response to IBORreform.Theamendmentsprovidetemporaryreliefswhichaddressthefinancialreportingeffectswhenaninterbankofferedrate(IBOR)isreplacedwithanalternativenearlyrisk-freeinterestrate(RFR).

The impact of the replacement of interbank offered rates with alternative risk-free rates on the Group’s products and services remains akeyareaoffocus.TheGrouphasexposuretocontractsreferencingIBORs,suchasLIBOR,extendingpastFY2021,whenitislikelythat these IBORs will cease being published or any subsequent timeline as determined by the relevant bodies. The Group is currently assessingtheimpactofthetransitiontothenewrateregimesafter2021byconsideringchangesinitsproducts,services,systemsandreporting and will continue to engage with internal and external stakeholders to support an orderly transition and to mitigate the risks resulting from the transition.

Annual improvements 2018-2020 cycle

These improvements include:

- IFRS1First-timeAdoptionofInternationalFinancialReportingStandards–SubsidiaryasaFirst-timeAdopter;

- IFRS9FinancialInstruments–Feesinthe‘10percent’TestforDerecognitionofFinancialLiabilities;

- IAS41Agriculture–TaxationinFairValueMeasurements;and

- IllustrativeExamplesaccompanyingIFRS16Leases–LeaseIncentives.

Theseimprovementsareeffectiveforreportingperiodsbeginningonorafter1January2022,withearlyapplicationpermitted.

TheGroupdoesnotexpectanysignificantimpactontheGroups’financialpositionandresultsfortheabovestandardsthatarenotyetadopted.

5. NEW AND AMENDED STANDARDS AND INTERPRETATIONS ISSUED AND EFFECTIVE

Theaccountingpoliciesusedinthepreparationoftheseconsolidatedfinancialstatementsareconsistentwiththoseusedinpreviousyear,exceptfortheadoptionofthefollowingnewstandardsoramendmentstoexistingstandards,applicabletotheGroup,andwhichare effective for annual periods beginning on or after 1 January 2020:

Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7 (IBOR reform phase 1)

IBOR reformphase1 includesanumberof reliefs,whichapply toallhedging relationships thataredirectlyaffectedby interest ratebenchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-basedcashflowsofthehedgeditemorthehedginginstrument.Asaresultofinterestratebenchmarkreform,theremaybeuncertaintiesaboutthetimingandoramountofbenchmark-basedcashflowsofthehedgeditemorthehedginginstrumentduringtheperiodbeforethereplacementofanexistinginterestratebenchmarkwithanalternativenearlyrisk-freeinterestrate(anRFR).Thismay lead to uncertainty whether an economic relationship exists and whether prospectively the hedging relationship is expected to be effective.




5. NEW AND AMENDED STANDARDS AND INTERPRETATIONS ISSUED AND EFFECTIVE (Continued)

Amendments to IFRS 3: Definition of a Business

TheamendmenttoIFRS3BusinessCombinationsclarifiesthattobeconsideredabusiness,anintegratedsetofactivitiesandassetsmust include,ataminimum,an inputandasubstantiveprocessthat,together,significantlycontributetotheabilitytocreateoutput.Furthermore,itclarifiesthatabusinesscanexistwithoutincludingalloftheinputsandprocessesneededtocreateoutputs.

Amendments to IAS 1 and IAS 8: Definition of Material

Theamendmentsprovideanewdefinitionofmaterial thatstates,“Information ismaterial ifomitting,misstatingorobscuring itcouldreasonablybeexpected to influencedecisions that theprimaryusersofgeneralpurpose financial statementsmakeon thebasisofthosefinancialstatements,whichprovidefinancialinformationaboutaspecificreportingentity.”Theamendmentsclarifythatmaterialitywilldependonthenatureormagnitudeofinformation,eitherindividuallyorincombinationwithotherinformation,inthecontextofthefinancialstatements.Amisstatementof information ismaterial if itcouldreasonablybeexpectedto influencedecisionsmadebytheprimary users.

Amendments to IFRS 16 COVID-19 Related Rent Concessions

On28May2020,theIASBissuedCOVID-19-RelatedRentConcessions-amendmenttoIFRS16Leases.TheamendmentsproviderelieftolesseesfromapplyingIFRS16guidanceonleasemodificationaccountingforrentconcessionsarisingasadirectconsequenceoftheCOVID-19pandemic.Asapracticalexpedient,alesseemayelectnottoassesswhetheraCOVID-19relatedrentconcessionfromalessorisaleasemodification.AlesseethatmakesthiselectionaccountsforanychangeinleasepaymentsresultingfromtheCOVID-19relatedrentconcessionthesamewayitwouldaccountforthechangeunderIFRS16,ifthechangewerenotaleasemodification.

Theabovenewstandards,interpretationsandamendmentstoIFRSswhichwereeffectiveforannualaccountingperiodsstartingfrom 1January2020,didnothaveanymaterialimpactontheaccountingpolicies,financialpositionorperformanceoftheGroup.

6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6.1 Investment in associatesTheGroup’sinvestmentsinitsassociatesareaccountedforusingtheequitymethod.Undertheequitymethod,theinvestmentinanassociate is initially recognised at cost.

The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

AnassociateisanentityoverwhichtheGrouphassignificantinfluence.Significantinfluenceisthepowertoparticipateinthefinancialandoperatingpolicydecisionsoftheinvestee,butisnotcontrolorjointcontroloverthosepolicies.

Thestatementofprofitor loss reflects theGroup’sshareof the resultsofoperationsof theassociate.Anychange inOCIof thoseinvesteesispresentedaspartoftheGroup’sOCI.Inaddition,whentherehasbeenachangerecogniseddirectlyintheequityoftheassociate, theGroup recognises itsshareofanychanges,whenapplicable, in thestatementofchanges inequity.Unrealisedgainsand losses resulting from transactions between the Group and the associate is eliminated to the extent of the interest in the associate.

TheaggregateoftheGroup’sshareofprofitorlossofanassociateischargedtothestatementofprofitorlossoutsideoperatingprofitandrepresentsprofitorlossaftertaxandnon-controllinginterestsinthesubsidiariesoftheassociate.

Thefinancialstatementsoftheassociateor jointventurearepreparedforthesamereportingperiodastheGroup.Whennecessary,adjustments are made to bring the accounting policies in line with those of the Group.

Afterapplicationoftheequitymethod,theGroupdetermineswhetheritisnecessarytorecogniseanimpairmentlossonitsinvestmentinitsassociate.Ateachreportingdate,theGroupdetermineswhetherthereisobjectiveevidencethattheinvestmentintheassociateisimpaired.Ifthereissuchevidence,theGroupcalculatestheamountofimpairmentasthedifferencebetweentherecoverableamountoftheassociateanditscarryingvalue,thenrecognisesthelossintheconsolidatedstatementofprofitorloss.

Uponlossofsignificantinfluenceovertheassociate,theGroupmeasuresandrecognisesanyretainedinvestmentatitsfairvalue.Anydifferencebetweenthecarryingamountoftheassociateuponlossofsignificantinfluenceandthefairvalueoftheretainedinvestmentandproceedsfromdisposalisrecognisedinprofitorloss.”





6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

6.2 Property and equipmentAll items of property and equipment are initially recorded at cost. Depreciation is provided on a straight-line basis over the estimated usefullivesofallpremisesandequipment,otherthanfreeholdlandwhichisdeemedtohaveanindefinitelife.

6.2.1 Recognition and measurementItems of property and equipment are measured at cost less accumulated depreciation and any accumulated Impairment losses.

Ifsignificantpartsofanitemofpropertyandequipmenthavedifferentusefullives,thentheyareaccountedforasseparateitems(majorcomponents)ofpropertyandequipment.

Anygainorlossondisposalofanitemofpropertyandequipment(calculatedasthedifferencebetweenthenetproceedsfromdisposalandthecarryingamountoftheitem)isrecognisedwithinotherincomeintheconsolidatedstatementofprofitorloss.

6.2.2 Subsequent measurementSubsequentexpenditureiscapitalisedonlywhenitisprobablethatthefutureeconomicbenefitsoftheexpenditurewillflowtotheGroup.Ongoing repairs and maintenance are expensed as incurred.

6.2.3 DepreciationDepreciation is calculated to write off the cost of property and equipment less their estimated residual values using the straight-line methodovertheirestimatedusefullives,andisgenerallyrecognisedintheconsolidatedstatementofprofitorloss.Leasedassetsaredepreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership bytheendoftheleaseterm.Landisnotdepreciated.Theestimatedusefullivesofsignificantitemsofpropertyandequipmentareasfollows:

Buildings on freehold premises 15 - 30 yearsFurniture,fixtures,vehicles,computersandofficeequipment 3 - 5 years

Depreciationmethods,usefullivesandresidualvaluesarereviewedateachreportingdateandadjustedifappropriate.

6.2.4 Reclassification to investment property

Whentheuseofapropertychangesfromowneroccupiedtoinvestmentproperty,thepropertyisclassifiedtoinvestmentpropertyandcarried at cost in line with the accounting policy as per note 6.4.

6.3 Leases - Group as a lessee

TheGroupappliesasinglerecognitionandmeasurementapproachforallleases,exceptforshort-termleasesandleasesoflow-valueassets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

a)Rightofuseassets

TheGroup recognises right of use assets at the commencement date of the lease (i.e., the date the underlying asset is availableforuse).Rightofuseassetsaremeasuredatcost, lessanyaccumulateddepreciationand impairment losses,andadjusted foranyre-measurementofleaseliabilities.Thecostofrightofuseassetsincludestheamountofleaseliabilitiesrecognised,initialdirectcostsincurred, and lease paymentsmade at or before the commencement date less any lease incentives received.Unless theGroup isreasonablycertaintoobtainownershipoftheleasedassetattheendoftheleaseterm,therecognisedrightofuseassetsaredepreciatedon a straight-line basis over the shorter of its estimated useful life and the lease term. Right of use assets are subject to impairment. The carryingvalueofright-of-useassetsarerecognisedunderpremisesandequipmentinthestatementoffinancialposition.

b)Leaseliabilities

Atthecommencementdateofthelease,theGrouprecognisesleaseliabilitiesmeasuredatthepresentvalueofleasepaymentstobemadeovertheleaseterm.Incalculatingthepresentvalueofleasepayments,theGroupusestheincrementalborrowingrateattheleasecommencementdateiftheinterestrateimplicitintheleaseisnotreadilydeterminable,inthiscaseBIBOR.Afterthecommencementdate,theamountofleaseliabilitiesisincreasedtoreflecttheaccretionofinterestandreducedfortheleasepaymentsmade.Inaddition,thecarryingamountofleaseliabilitiesisremeasuredifthereisamodification,achangeintheleaseterm,achangeinthein-substancefixed leasepaymentsorachange intheassessmenttopurchasetheunderlyingassetand isrecognisedunderother liabilities inthestatementoffinancialposition.





6.4 Investment property

Investment properties are those which are held by the Group to earn rental income or for capital appreciation or both. Investment properties are stated at cost less accumulated depreciation and any impairment losses. Depreciation is calculated on cost using the straight-line method at annual rates which are intended to write off the cost of the investment property over their estimated useful lives thatrangefrom10to40years.Anygainorlossondisposaloftheinvestmentproperty(calculatedasthedifferencebetweenthenetprocessformthedisposalandthecarryingamountoftheitem)isrecognizedintheconsolidatedstatementofprofitorloss.

6.5 Trade receivables

Accounts receivable are stated at original invoice amount net of discounts and provisions for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when there is no possibility of recovery.

6.6 Term loans

Termloansareinitiallymeasuredatfairvalueminusincrementaldirecttransactioncosts,andsubsequentlymeasuredattheiramortisedcost using the effective interest method.

6.7 Deposits

Depositsareinitiallymeasuredatfairvalueminusincrementaldirecttransactioncosts,andsubsequentlymeasuredattheiramortisedcost using the effective interest method.

6.8 Provisions

Aprovisionisrecognisedif,asaresultofapastevent,theGrouphasapresentlegalorconstructiveobligationthatcanbeestimatedreliably,anditisprobablethatanoutflowofeconomicbenefitswillberequiredtosettletheobligation.

6.9 Employees’ end of service benefits

Pensionrights(andothersocialbenefits)forBahrainiemployeesarecoveredbytheGeneralOrganisationforSocialInsuranceschemetowhichemployeesandemployerscontributemonthlyonafixed-percentage-ofsalariesbasis.TheGroup’sshareofcontributionstothisscheme,whichisadefinedcontributionschemeunderIAS19-EmployeesBenefits,isrecognisedasanexpenseintheconsolidatedstatementofprofitorloss.

ExpatriateemployeesareentitledtoleavingindemnitiespayableundertheBahrainiLabourlawforthePrivateSector2012,basedonlengthofserviceandfinalremuneration.Provisionforthiswhichisunfundedhasbeenmadebycalculatingthenotionalliabilityhadallemployeesleftatthereportingdate.Thesechargesarerecognisedasanexpenseintheconsolidatedstatementofprofitorloss.

6.10 Income recognition

Interestincomeandexpensearerecognisedinprofitorlossusingtheeffectiveinterestmethod.Theeffectiveinterestratioistheratethatexactlydiscountstheestimatedfuturecashpaymentsandreceiptsthroughtheexpectedlifeofthefinancialassetorfinancialliability(or,whereappropriate,ashorterperiodtothecarryingamountofthefinancialassetorfinancialliability).Whencalculatingtheeffectiveinterestrate, theGroupestimatesfuturecashflowsconsideringallcontractual termsof thefinancial instrument,butnot futurecreditlosses.

The calculation of the effective interest rate includes transaction costs and fees paid or received that are an integral part of the effective interestrate.Transactioncostsincludeincrementalcoststhataredirectlyattributabletotheacquisitionofafinancialassetorfinancialliability.

6.11 Dividend income

Dividend income is recognised when the right to receive income is established.

6.12 Fee and commission income

Feeandcommissionincomeandrelatedexpensesthatareintegraltotheeffectiveinterestrateonafinancialassetorfinancialliabilityare included in the measurement of the effective interest rate.

Otherfeeandcommissionincomeincludingaccountservicingfees,investmentmanagementfees,salescommission,placementfeesand syndication fees are recognised as the related services are performed. If a loan commitment is not expected to result in the draw-downofaloan,thentherelatedloancommitmentfeeisrecognisedonastraight-linebasisoverthecommitment.

Otherfeeandcommissionexpenserelatemainlytotransactionandservicefees,whichareexpensedastheserviceisreceived.






6.13 Rental income

Rentalincomefrominvestmentpropertyisrecognisedasrevenueonastraightlinebasisoverthetermofthelease.Leaseincentivesgrantedarerecognisedasanintegralpartofthetotalrentalincome,overthetermofthelease.

6.14 Other capital contribution

Thisrepresentsanon-reciprocalcontribution,hasnointerestandnorepaymenttermsandwillonlyberepaidonliquidationoftheBankandaccordingly,ithasbeenclassifiedasequity.

6.15 Foreign currencies

Transactions in foreign currencies are translated into the functional currency at the spot exchange rates at the date of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functionalcurrencyatthebeginningoftheyear,adjustedforeffectiveinterestandpaymentsduringtheyear,andtheamortisedcostinthe foreign currency translated at the spot exchange rate at the end of the year.

Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.

Foreigncurrencydifferencesarisingontranslationaregenerallyrecognisedintheconsolidatedstatementofprofitorloss.

6.16 Cash and cash equivalents

Cashandcashequivalentsincludesnotesandcoinsonhand,unrestrictedbalancesheldwiththeCentralBankandhighlyliquidfinancialassetswithoriginalmaturitiesof threemonthsor less fromthedateofacquisition thataresubject to insignificant riskofchanges intheirfairvalue,andareusedbytheGroupinthemanagementofitsshort-termcommitments.Cashandcashequivalentsarecarriedatamortisedcostinthestatementoffinancialposition.

6.17 Derivatives

Intheordinarycourseofbusiness,theBankentersintotransactionsthatinvolvederivativefinancial instruments.Aderivativefinancialinstrumentisafinancialcontractbetweentwopartieswherepaymentisdependentuponmovementsinpriceinoneormoreunderlyingfinancialinstruments,referencerateorindex.Derivativefinancialinstrumentsincludeforwardexchangecontracts.

Forwardsarecontractualagreementstoeitherbuyorsellaspecifiedcurrency,commodityorfinancialinstrumentataspecificpriceanddate in the future. Forwards are customised contracts transacted in the over-the-counter market.

6.18 Financial assets and financial liabilities

The Bank’s key accounting policies in compliance with IFRS 9 are summarised below:

6.18.1 Recognition and initial measurement

All “regularway”purchasesandsalesof financialassetsare recognisedon the tradedate, i.e. thedate that theGroupcommits topurchaseorselltheasset.Regularwaypurchasesorsalesarepurchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinthe time frame generally established by regulation or convention in the market place.

Afinancialassetorfinancial liability ismeasuredinitiallyatfairvalueplus,foranitemnotatFVTPL,transactioncoststhataredirectlyattributable to its acquisition or issue.

6.18.2 ClassificationFinancial assets

Oninitialrecognition,afinancialassetisclassifiedasatamortisedcost,FVOCIorFVTPL.AfinancialassetismeasuredatamortisedcostifitmeetsboththefollowingconditionsandisnotdesignatedasatFVTPL:

- Theassetisheldwithinabusinessmodelwhoseobjectiveistoholdassetstocollectcontractualcashflows;and

- Thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandintereston the principal amount outstanding.





6.18.2 Classification (continued)

AdebtinstrumentismeasuredatFVOCIonlyifitmeetsbothofthefollowingconditionsandisnotdesignatedasatFVTPL:

- Theassetisheldwithinabusinessmodelwhoseobjectiveisachievedbybothcollectingcontractualcashflowsandsellingfinancialassets;and

- Thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypaymentsofprincipalandintereston the principal amount outstanding.

Oninitialrecognitionofanequityinvestmentthatisnotheldfortrading,theGroupmayirrevocablyelecttopresentsubsequentchangesin fair value in OCI. This election is made on an investment-by-investment basis.

AllotherfinancialassetsareclassifiedasmeasuredatFVTPL.

Inaddition,on initial recognition, theGroupmay irrevocablydesignateafinancialasset thatotherwisemeets the requirements tobemeasuredatamortisedcostoratFVOCIasatFVTPLifdoingsoeliminatesorsignificantlyreducesanaccountingmismatchthatwouldotherwise arise.

Financial assets designation at fair value through profit or loss

TheGroupdesignatedcertainfinancialassetsasatFVTPLbecause theassetsweremanaged,evaluatedandreported internallyon a fair value basis.

Business model assessment

The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflectsthewaythebusinessismanagedandinformationisprovidedtomanagement.Theinformationconsideredincludes:

- Thestatedpoliciesandobjectivesfortheportfolioandtheoperationofthosepoliciesinpractice.Inparticular,whethermanagement’sstrategyfocusesonearningcontractualinterestrevenue,realisingcashflowsthroughthesaleoftheassetsandholdingitforliquiditypurposes;

- Therisksthataffecttheperformanceofthebusinessmodel(andthefinancialassetsheldwithinthatbusinessmodel)andhowthoserisksaremanaged;and

- Thefrequency,volumeandtimingofsalesinpriorperiods,thereasonsforsuchsalesanditsexpectationsaboutfuturesalesactivity.However, informationaboutsalesactivity isnotconsidered in isolation,butaspartofanoverallassessmentofhowtheGroup’sstatedobjectiveformanagingthefinancialassetsisachievedandhowcashflowsarerealised.

FinancialassetsthatareheldfortradingormanagedandwhoseperformanceisevaluatedonafairvaluebasisaremeasuredatFVTPLbecausetheyareneitherheldtocollectcontractualcashflowsnorheldbothtocollectcontractualcashflowsandtosellfinancialassets.

Assessment whether contractual cash flows are solely payments of principal and interest

Forthepurposesofthisassessment,‘principal’isdefinedasthefairvalueofthefinancialassetoninitialrecognition,whichmaychangeoverthe lifeofthefinancialasset. ‘Interest’ isdefinedasconsiderationforthetimevalueofmoneyandforthecreditriskassociatedwiththeprincipalamountoutstandingduringaparticularperiodoftimeandforotherbasiclendingrisksandcosts(e.g.liquidityriskandadministrativecosts),aswellasprofitmargin.

- Contingenteventsthatwouldchangetheamountandtimingofcashflows;

- Leveragefeatures;

- Prepaymentandextensionterms;

- TermsthatlimittheGroup’sclaimtocashflowsfromspecifiedassets(e.g.non-recourseassetarrangements);and

- Featuresthatmodifyconsiderationofthetimevalueofmoney(e.g.periodicalresetofinterestrates).

Reclassifications

Financialassetsarenot reclassifiedsubsequent to their initial recognition,except in theperiodafter theGroupchanges itsbusinessmodelformanagingfinancialassets.

Financial liabilities

TheGroupclassifiesitsfinancialliabilities,otherthanfinancialguaranteesandloancommitments,asmeasuredatamortisedcost.






6.18.3 Derecognition

Financial assets

Ifthetermsofafinancialassetaremodified,theGroupevaluateswhetherthecashflowsofthemodifiedassetaresubstantiallydifferent.Ifthecashflowsaresubstantiallydifferent,thenthecontractualrightstocashflowsfromtheoriginalfinancialassetaredeemedtohaveexpired.Inthiscase,theoriginalfinancialassetisderecognisedandanewfinancialassetisrecognisedatfairvalue.

Onderecognitionofafinancialasset,thedifferencebetweenthecarryingamountoftheasset(orthecarryingamountallocatedtotheportionoftheassetderecognised)andthesumof(i)theconsiderationreceived(includinganynewassetobtainedlessanynewliabilityassumed)and(ii)anycumulativegainorlossthathadbeenrecognisedinOCIisrecognisedinprofitorloss.

Afinancialasset(inwholeorinpart)isderecognisedwhere:

- therightstoreceivecashflowsfromtheassethaveexpired;or

- theGrouphastransferreditsrightstoreceivecashflowsfromtheassetorhasassumedanobligationtopaythereceivedcashflowsinfullwithoutmaterialdelaytoathirdpartyundera‘pass-through’arrangement;andeither(a)theGrouphastransferredsubstantiallyalltherisksandrewardsofownershipor(b)whenithasneithertransferredorretainedsubstantiallyalltherisksandrewardsandwhenitnolongerhascontroloverthefinancialasset,buthastransferredcontroloftheasset.

Financial liabilities

TheGroupderecognisesafinancialliabilitywhenitscontractualobligationsaredischargedorcancelled,orexpire.

6.18.4 Impairment of financial assets

Impairmentoffinancialassetsaredeterminedusingan“expectedcreditloss’model(“ECL”)asrequiredunderIFRS9.Thisisimpairmentmodelisalsoappliedtocertainloancommitmentsandfinancialguarantees.TheallowanceisbasedontheECLsassociatedwiththeprobabilityofdefaultinthenexttwelvemonthsunlesstherehasbeenasignificantincreaseincreditrisksinceorigination,inwhichcase,theallowanceisbasedonthechangeintheECLsoverthelifeoftheasset.UnderIFRS9,creditlossesarerecognizedearlierthanunderthe previous standard.

6.18.5 Expected credit loss (ECL)

TheBankrecognisesECLonthefollowingfinancialassetsthatarenotmeasuredatfairvaluethroughprofitorloss:

a) Debtinvestments;

b) Placementswithbanksandotherfinancialinstitutions;

c) slamicfinancingandloanstocustomers;

d) Lettersofcreditandbankguarantees;and

e) rrevocable undrawn commitments.

TheBankmeasureslossallowancesatanamountequaltolifetimeECL,exceptfortheotherfinancialassetsonwhichcreditriskhasnotincreasedsignificantlysincetheirinitialrecognition,forwhichECLismeasuredas12-monthECL.12-monthECLaretheportionofECLthatresultfromdefaulteventsonafinancialassetthatispossiblewithinthe12monthsafterthereportingdate.

6.18.6 Presentation of allowance for ECL in the statement of financial position

AllowancesforECLarepresentedinthestatementoffinancialpositionasfollows:

a)financialassetsmeasuredatamortisedcost:asadeductionfromthegrosscarryingamountoftheassets;and

b)whereafinancialinstrumentincludesbothadrawnandanundrawncomponent(asinthecaseofoverdraft,letterofcredit/bankguaranteelimitsetc.),theBankpresentsalossallowancefortheapprovedlimitofthefacilityin‘otherliabilities’.

6.18.7 Write-offs

The Bank’s accounting policy for write-offs under IFRS 9 remains the same. Financial assets are written off either partially or in their entirety only when the Bank has thoroughly explored most avenues of recovery and it is recognized thereafter that the outstanding amountofthedebtisclearlynotrecoverable.However,inallwritten-offcases,theBank’seffortstowardstherecoveryoftheoutstandingamount continues and periodic updates are provided to the Board of Directors. If the amount to be written off is greater than the accumulatedlossallowance,thedifferenceisfirsttreatedasanadditiontotheallowancethatisthenappliedagainstthegrosscarryingamount.Anysubsequentrecoveriesarecreditedto‘otherincome’.

Refer to note 28 for further details.




7. CASH AND CASH EQUIVALENTS

2020BD ’000

2019BD ’000

Cash and balances with Central Bank of Bahrain 2,568 1,976Placementwithbanksandotherfinancialinstitutions 3,722 14,850

6,290 16,826Less:reservewithCentralBankofBahrain (2,014) (1,494)Less:placementswithbanksandotherfinancialinstitutionshavingoriginalmaturityof

more than 90 days (301) (7,660)Add: allowance for expected credit losses 5 87 Cash and cash equivalents at end of the year 3,980 7,759

2020BD ’000

2019BD ’000

CashandbalanceswithCentralBankofBahrain(excludingreserves) 554 482 Placementswithbanksandotherfinancialinstitutionshavingoriginalmaturityof90daysorless 3,426 7,277

3,980 7,759

8. ISLAMIC FINANCING AND LOANS TO CUSTOMERS

2020BD ’000

2019BD ’000

Projectfinance-Islamic 136,660 73,418Projectfinance-conventional 19,625 19,965Fisheries and agriculture 3,304 3,905Other loans 2,406 1,549

161,995 98,837Less:allowanceforexpectedcreditlosses/provision* (15,365) (22,106)

146,630 76,731

*ThisincludescreditlossesofBD11,915thousand(31December2019:BD13,591thousand)againstIslamicfinancingtocustomers

Included in islamic financing and loans to customers, facility at zero interest rate carried at a discount of BD 12,922 thousand (31December2019:BDNil)withundiscountedamountofBD50,000thousand(31December2019:BDNil).





8. ISLAMIC FINANCING AND LOANS TO CUSTOMERS (Continued)

BelowisthemovementforexpectedcreditlossesonIslamicfinancingandloanstocustomers:

2020

Stage 112-months

ECLBD ’000

Stage 2Life timeECL not

creditimpairedBD ’000

Stage 3Lifetime

ECL credit-impairedBD ’000

TotalBD ’000

Balance at 1st January 642 196 21,268 22,106Changed due to financial assets recognised in opening

balances that have:-transferredto12-monthECL 584 (91) (493) - -transferredtoStage2(lifetimeECLnotcredit-impaired) (7) 36 (29) - -transferredtoStage3(lifetimeECLcredit-impaired) (5) (71) 76 -

Net re-measurement of loss allowance 355 414 2,297 3,066 Recoveries / write-backs (607) (55) (1,591) (2,253)Allowance for expected credit losses - net 320 233 260 813 Write offs during the year - - (7,554) (7,554)Balance at 31 December 962 429 13,974 15,365

2019

Stage 112-months

ECLBD ’000

Stage 2LifetimeECLnot


Stage 3Lifetime

ECLcredit-impairedBD ’000

TotalBD ’000

Balance as at 1 January 742 998 22,830 24,570Changedduetofinancialassetsrecognisedinopeningbalances

that have:-transferredto12-monthECL 577 (491) (86) - -transferredtoStage2(lifetimeECLnotcredit-impaired) (24) 150 (126) - -transferredtoStage3(lifetimeECLcredit-impaired) (22) (277) 299 - Net re-measurement of loss allowance 233 112 1,468 1,813Recoveries / write-backs (864) (289) (1,433) (2,586)Allowance for expected credit losses - net (100) (795) 122 (773)Write offs during the year - (7) (1,684) (1,691)Balance at 31 December 642 196 21,268 22,106

At31December2020,interestinsuspenseonpastdueloansthatarecreditimpairedamountedtoBD1,879thousand(31December2019:BD2,780thousand)andaretreatedasamemorandumaccount.




8. ISLAMIC FINANCING AND LOANS TO CUSTOMERS (Continued)

ThefollowingtablesetsoutinformationaboutthecreditqualityofIslamicfinancingandloanstocustomers:

31 December 2020 (Audited)

Stage 112-months

ECLBD ’000



Stage 3Lifetime

ECL credit-impairedBD ’000

TotalBD ’000

Corporate 74,200 2,255 17,561 94,016 SME 38,305 616 5,731 44,652 Small business 13,377 312 3,237 16,926 Taxi loans - - 21 21 Education loans 241 - 434 675 Overdrafts 1,486 - 528 2,014 Others 2,438 60 1,193 3,691

130,047 3,243 28,705 161,995 Less:allowanceforexpectedcreditlosses (962) (429) (13,974) (15,365)

129,085 2,814 14,731 146,630

31December2019(Audited)

Stage 112-months

ECLBD ’000

Stage 2LifetimeECLnot


Stage 3Lifetime

ECLcredit-impairedBD ’000

TotalBD ’000

Corporate 30,852 575 23,891 55,318SME 12,757 893 5,987 19,637Small business 11,811 717 4,234 16,762Taxi loans - - 59 59 Education loans 355 28 1,229 1,612Overdrafts 580 - 535 1,115Others 2,395 206 1,733 4,334

58,750 2,419 37,668 98,837Less:allowanceforexpectedcreditlosses (642) (196) (21,268) (22,106)

58,108 2,223 16,400 76,731

Thefairvalueofthecollateralconsistingofcash,securitiesandrealestatethattheGroupholdsrelatingtoloansindividuallydeterminedtobeimpairedat31December2020amountstoBD8,617thousand(31December2019:BD13,594thousand).

ThecontractualamountoutstandingonfinancingassetswrittenoffbytheGroupasat31December2020andthatarestillsubjecttoenforcementactivitywasBD13,336thousand(31December2019:BD5,876thousand).





9. INVESTMENT SECURITIES

2020BD ’000

2019BD ’000

At fair value through profit or loss:Conventional equities 5,575 5,245Islamic equities 82 355

5,657 5,600At fair value through other comprehensive income:Conventional equities 126 181 Conventional debt securities* 17,607 17,521Sukuk* 6,498 6,498

24,231 24,200At amortized cost:Conventional debt securities* 26,476 11,647

56,364 41,447

*ThesearesovereignexposuresbasedinKingdomofBahrain,withlowriskprofileandfullyrecoverableandhence,ECLassumedtobe minimal.

10. INVESTMENT IN ASSOCIATES

Ownership interest

2020 2019 Principal activity

Arabian Taxi Company 20.00% 20.00% Operating and managing taxi services

EBDABank("EBDB") 21.13% 21.13% Providingmicrofinanceandrelatedadvisoryservices.

AssociatesareincorporatedinBahrainandaccountedforusingtheequitymethodintheseconsolidatedfinancialstatements.

2020BD ’000

2019BD ’000

The carrying amount of investment in associated companiesAt 1 January 322 259

Shareofprofitfromassociates 52 63 At 31 December 374 322




11. INVESTMENT PROPERTIES

2020BD ’000

2019BD ’000

At 1 January 11,527 12,000Capital work in process 17 - Depreciation charge for the year (473) (473)At 31 December 11,071 11,527

As of 31 December 2020, investment properties include 4 buildings (2019: 4 buildings) with a fair value of BD 17,761 thousand (2019:BD15,047thousand)asdeterminedbythemanagement.

ThefairvaluemeasurementoftheinvestmentpropertieshasbeencategorizedasaLevel3fairvaluebasedontheinputstothevaluationtechniqueused.Thediscountedcashflowsmodelconsidersthepresentvalueofnetcashflowstobegeneratedfromtheproperty,takingintoaccounttheexpectedrentalgrowthrate,voidperiods,occupancyrate,leaseincentivecostssuchasrent-freeperiodsandothercostsnotpaidbytenants.Theexpectednetcashflowsarediscountedusingrisk-adjusteddiscountedrates.Amongotherfactors,thediscountrateestimationconsidersqualityofabuildinganditslocation,tenantcreditqualityandleaseterms.

12. PROPERTY AND EQUIPMENT

Freeholdland

BD ’000

Right ofUse assets

BD ’000

Freeholdpremises

BD ’000

Furniture,fixtures,vehicles

and officeequipment

BD ’000Total

BD ’000Cost:

At 1 January 2020 293 741 1,659 2,389 5,082 Additions - 44 - 610 654 Disposals / write offs - (54) - (15) (69)

At 31 December 2020 293 731 1,659 2,984 5,667 Depreciation:

At 1 January 2020 - 34 1,352 1,705 3,091 Charge for the year - 281 55 329 665 Disposals / write offs - - - (15) (15)

At 31 December 2020 315 1,407 2,019 3,741 Net book values:At 31 December 2020 293 416 252 965 1,926





12. PROPERTY AND EQUIPMENT (Continued)

2019

Freeholdland

BD ’000

Right ofUse assets

BD ’000

FreeholdpremisesBD ’000

Furniture,fixtures,vehicles

computersandoffice

equipmentBD ’000

TotalBD ’000

Cost:At 1 January 2019 293 - 1,659 1,917 3,869Additions - 741 - 476 1,217Disposals / write offs - - - (4) (4)

At 31 December 2019 293 741 1,659 2,389 5,082Depreciation:

At 1 January 2019 - - 1,297 1,417 2,714Charge for the year - 34 55 292 381 Disposals / write offs - - - - - Adjustment - - - (4) (4)

At 31 December 2019 - 34 1,352 1,705 3,091Net book values:At 31 December 2019 293 707 307 684 1,991

13. OTHER ASSETS

2020BD ’000

2019BD ’000

Rent and other accounts receivable 3,389 2,898Receivable related to Sitra Mall 542 542 Profit/Interestreceivable 1,871 1,326Receivable from Ministry of Finance 407 418 Prepayments and other assets 706 278 Total of other assets 6,915 5,462Provision for impairment (3,087) (3,046)Net of other assets 3,828 2,416




14. TERM LOANS

2020BD ’000

2019BD ’000

Saudi Fund for Development 7,519 8,023Arab Fund for Economic and Social Development 27,785 34,270

35,304 42,293

The movement of the term loans during the year is as follows:

2020BD ’000

2019BD ’000

At 1 January 2020 42,293 50,607Repayment of loans (6,989) (8,314)At 31 December 2020 35,304 42,293

Saudi Fund for Development

During2012, theBankobtaineda loanofSAR100million fromSaudiFund forDevelopment.The facilityhasbeen fullyavailedandis repayable semi-annually over 25 years (5 years graceperiod for principal) at an interest rate of 2.0%. TheMinistry of Finance is a guarantor to the loan.

Arab Fund for Economic and Social Development

During2013,theBankhadobtainedaloanofUSD30millionfromArabFundforEconomicandSocialDevelopment(AFESD).Thefacilityhasbeenfullyavailedandisrepayablesemi-annuallyover10years(3yearsgraceperiodforprincipal)ataninterestrateof3.0%.During2014,theBankhadobtainedasecondloanofUSD50millionfromAFESD.Thefacilityhasbeenfullyavailedandisrepayablesemi-annuallyover10years(3yearsgraceperiodforprincipal)ataninterestrateof3.0%.During2016,theBankhadobtainedathirdloanofUSD50millionfromAFESD.Thefacilityhasbeenfullyavailedandisrepayablesemi-annuallyover10years(3yearsgraceperiodforprincipal)ataninterestrateof3.0%.ArabFundhasallowedaninterimgraceperiodforoneyearasconcessionarymeasureinresponseofCOVID-19pandemic.

15. DEPOSITS

2020BD ’000

2019BD ’000

Deposits from banks - 5,467Deposits from non-banks 118,030 29,451

118,030 34,918

Deposits fromcustomers includeBD112,010thousand(31December2019:BD15,432thousand)keptasmargindepositsagainstfinancingsprovided.

Included in the deposits, a deposit with zero interest rate provided by Ministry of Finance and National Economy and carried at adiscountandamountingtoBD12,982thousand(31December2019:BDNil)whiletheundiscountedamountisBD52,500thousand(31December2019:BDNil).

16. SHARE CAPITAL

2020BD ’000

2019BD ’000

Authorized:100million(2019:100million)sharesofBD1each 100,000 100,000Issued and fully paid-up:65million(2019:65million)sharesofBD1each 65,000 65,000





17. STATUTORY RESERVE

In accordance with the provisions of the Bahrain Commercial Companies Law and the Bank’s articles of association, an amountequivalentto10%ofthenetprofitfortheyearistransferredtothestatutoryreserve.TheBankmayresolvetodiscontinuesuchannualtransferswhenthereservetotals50%ofthepaidupsharecapital.Thisreserveisnotdistributable,butcanbeutilisedforthepurposesofadistributioninsuchcircumstancesasstipulatedintheBahrainCommercialCompaniesLawandfollowingtheapprovaloftheCBB.Nosuchtransfershavebeenmadeduringtheyearended31December2020and2019,astheBankishavingaccumulatedlosses.

18. OTHER CAPITAL CONTRIBUTION

Other capital contribution mainly includes a contribution by a majority shareholder for a non-monetary asset in the form of a commercial propertytotheBank.Thepropertyhasbeenclassifiedasaninvestmentproperty(refernote11)thatwasrecognisedatitsfairvalueonthedateoftransferandasacapitalcontributioninthestatementofchangesinequityofBD3,623thousand.

19. ISLAMIC FINANCING AND INTEREST INCOME

2020BD ’000

2019BD ’000

ProfitonIslamicfinancing 5,288 4,969Interest on conventional loans 1,304 1,133Profitandinterestonsecurities 1,740 1,740Profitandinterestonplacements 204 392

8,536 8,234

20. ISLAMIC FINANCING AND INTEREST EXPENSE

2020BD ’000

2019BD ’000

Interest on term loans 1,085 1,305Interest on deposits from non-banks 100 260 ProfitondepositsfromIslamicbanks 20 17 Interest on deposits from conventional banks 8 6

1,213 1,588

21. FEE AND COMMISSION INCOME

2020BD ’000

2019BD ’000

OnIslamicfinancingandloanstocustomers 414 311 On contingent liabilities 38 46

452 357

22. INVESTMENT INCOME

2020BD ’000

2019BD ’000

LossonsaleofFVTPLinvestments - (17)ChangesinfairvalueofinvestmentsclassifiedasFVTPL (416) (348)Dividend income - 77

(416) (288)




23. ALLOWANCE FOR EXPECTED CREDIT LOSSES / PROVISION - NET

2020BD ’000

2019BD ’000

Placementwithbanksandotherfinancialinstitutions (82) 26 Islamicfinancingandloanstocustomers 813 (773)Other assets 194 953 Contingent liabilities and commitments (256) 234 Recoveries from written-off loans (557) (441)

112 (1)

24. CONTINGENT LIABILITIES AND COMMITMENTS

The Bank issues letters of credit and guarantees to its existing customers. These instruments commit the Bank to make payments on behalfofcustomersintheeventofaspecificact,generallyrelatedtotheimportofgoods.

Irrevocablecommitments toextendcreditare the Islamicfinancingand loans,whichhavebeenapprovedbytheBankbuthavenotbeen disbursed as of the reporting date.

Details of contingent liabilities and commitments are given below:

2020BD ’000

2019BD ’000

Contingent liabilities:Lettersofcredit* - 46 Lettersofguarantee* 1,530 1,461

1,530 1,507Commitments:Irrevocable commitments to extend credit * 1,450 3,557Commitment to invest in equity ** 2,317 2,746Capital expenditure 2,181 -

5,948 6,3037,478 7,810

*TheBankcarriesanallowanceofECLofBD96thousand(31December2019:352thousand)againsttheseoff-balancesheetitemswhichisclassifiedunderotherliabilities.

**ThisrepresentstheBank’scommitmenttoinvesta10%equityportioninAl-WahaVentureCapitalFundestablishedwithatotalvalueofUSD100million(equivalentBD37.7million).Duringtheyear,theBankpaidBD429thousand(2019:739thousand)towardthiscommitment.





25. FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

- Intheprincipalmarketfortheassetorliability,or

- Intheabsenceofaprincipalmarket,inthemostadvantageousmarketfortheassetorliability,theprincipalorthemostadvantageousmarket must be accessible to by the Group.

Underlyingthedefinitionoffairvalueisapresumptionthatanenterpriseisagoingconcernwithoutanyintentionorneedtoliquidate,curtail materially the scale of its operations or undertake a transaction on adverse terms.

TheGroupmeasuresfairvaluesoffinancialinstrumentsusingthefollowingfairvaluehierarchythatreflectsthesignificanceoftheinputsused in making the measurements.

Level1:Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Thiscategoryincludesinstrumentsvaluedusingquotedmarketpricesinactivemarketsforsimilarinstruments;quotedpricesforidenticalorsimilarinstrumentsinmarketsthatareconsideredlessthanactive;orothervaluationtechniqueswhereallsignificantinputsaredirectlyobservable from market data.

Level3:Valuationtechniquesusingsignificantunobservableinputs.Thiscategoryincludesinstrumentswherethevaluationtechniqueincludes inputs not based on market observable data.

Term loans obtained by the Bank are from Development Funds in Kuwait and the Kingdom of Saudi Arabia. There is no secondary marketforsuchloanswhichareatlowerthanmarketratesduetothenatureoftheseloans.TheBankhasestimatedthatitsfinancingrates and terms are comparable to that of the objectives of other similar development banks in the region and accordingly believes the carrying value of term loans obtained are a close approximation of their fair values.

The fair value of deposits approximates the carrying value as at the reporting date given their short term nature.

There is no change in the valuation techniques used for valuation of investments during the period as compared to the year ended 31 December 2020.

The valuation technique for Level 2 financial assets is arrived on the basis of themarketmultiples approach and discounted cashflows.Thekey inputsused includearangeofweightedaveragecostofcapitalusedfordiscountingcashflows,discount for lackofmarketability,controlpremiumetc.

Thebankusesvariousvaluationtechniquessuchasdiscountedcashflows,marketmultiplesandadjustednetassetsvaluetoarriveatthefairvalueofLevel3financialassets.Thekeyinputsusedarediscountrateandgrowthrate,priceearningmultipleandnetassetsvalue. The reasonable potential shift in any of the abovementioned inputs will not have any significant effect on the consolidatedstatementofprofitandloss.

Thetablebelowanalysesfinancialinstruments,measuredatfairvalueasatbothreportingdates,inthefairvaluehierarchyintowhichthefairvaluemeasurementiscategorised.Thefairvaluesoffinancialassetsandfinancialliabilitiescarriedatamortisedcostapproximatetheir carrying values as at the reporting dates.

Financial assets measured at fair value:Level 1

BD ’000Level 2

BD ’000Level 3

BD ’000

Total fair value

BD ’000

Total carrying value

BD ’000

31 December 2020Investment securities - equity 1 81 5,701 5,783 5,783 Investment securities - debt 24,105 - - 24,105 24,105

31 December 2019Investment securities - equity 1 354 5,426 5,781 5,781Investment securities - debt 24,019 - - 24,019 24,019

TheBankhasoutstandingforwardforexcontractstobuyUSD,SAR&EURfromCentralBankofBahrain(“CBB”)withanominalvalueofBD35,148thousand(2019:BD27,808thousand)withtenorsoflessthanoneyear.




25. FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

BelowisthereconciliationofLevel3financialassetscarriedatfairvalue:

2020BD ’000

2019BD ’000

At beginning of the year 5,426 4,796Changesinfairvaluerecognisedinthestatementofprofitorloss (98) (84)Additions during the year 429 739 Written off during the year (55) (25)At end of the year 5,701 5,426

Sensitivity analysis

FVTPLinvestmentscomprisesinvestmentsinprivateequityentitiesandfunds.Themainprinciples,estimatesandassumptionsadoptedtoarriveatfairvalueincludeestimatedfuturecashflowswhichhavebeenprovidedbythemanagementoftheinvesteecompaniesbuthavebeenreviewedforreasonablenessbytheGroupandtheexternalvaluer.Cashflowshavebeenprojectedforaninitialperiodoffiveyears or over the project life in certain cases and then a terminal value has been estimated at a growth rate of 2% to 3%.

ThepotentialeffectofusingreasonablepossiblealternativeassumptionsforfairvaluingtheinvestmentsatFVTPLaresummarisedbelow:

Valuation technique used

Keyunobservable

inputs

Fair value at 31 December

2020BD '000

Reasonable possible shift +/-

(in any input)

Impact on profit or loss

BD '000

Discounted cash flow Discount rate 2,824 +/- 0.5% (61) / 67Growth rate +/- 0.5% 42 / (38)

Adjusted Net Assets Value NAV 2,751 +/- 5% 70 / (30)

Valuation technique used

Keyunobservable

inputs

Fair value at 31 December

2018BD '000

Reasonable possible shift +/-

(inanyinput)

Impact on profitorloss

BD '000

Discountedcashflow Discount rate 2,873 +/- 0.5% (61)/67Growth rate +/- 0.5% 42/(38)

AdjustedNetAssetsValue NAV 2,367 +/- 5% 71/(31)





26. RELATED PARTY TRANSACTIONS

TheGroupentersintotransactionswithrelatedpartieswhichcomprisemajorshareholders,associates,directors,seniormanagementand entities controlled jointly or significantly influenced by such related parties in the ordinary course of business at agreed rates.Amounts due from related parties are unsecured.

Theyearendbalancesinrespectofrelatedpartiesincludedintheconsolidatedstatementoffinancialpositionareasfollows:

Directors and key management

personnelBD ’000

Shareholdersand related companies

BD ’000Total

BD ’00031 December 2020Islamicfinancingandloanstocustomers 1,225 - 1,225 Investment in associates - 374 374 Other assets - 407 407 Deposits 253 100,345 100,598


personnelBD ’000


BD ’000Total

BD ’00031 December 2019Islamicfinancingandloanstocustomers 569 - 569 Investment in associates - 322 322 Other assets - 418 418 Deposits 10 3,715 3,725

Thetransactionswithrelatedpartiesincludedintheconsolidatedstatementofprofitorlossareasfollows:


personnelBD ’000


BD ’000Total

BD ’000

2020Islamicfinancingandinterestincome 17 - 17Islamicfinancingandinterestexpense - 30 30Shareofprofitforassociates - 52 52


personnelBD ’000


BD ’000Total

BD ’000

2019Islamicfinancingandinterestincome 24 - 24Islamicfinancingandinterestexpense - 57 57Shareofprofitforassociates - 63 63

Compensation of key management personnel is as follows:

2020BD ’000

2019BD ’000

Board remuneration 165 178Salaryandshort-termemployeebenefits 951 908Terminationbenefits 75 87

1,191 1,173




27. RISK MANAGEMENT

Risk is inherent in the Bank’s activities but ismanaged through a process of ongoing identification,measurement andmonitoring,subjecttorisklimitsandothercontrols.Inthecourseofitsregularbusiness,theBankisexposedtomultiplerisksnotablycreditrisk,liquidityrisk,marketrisk,operationalriskandotherriskslikecompliancerisk,strategicrisksandreputationalrisks.Awell-establishedrisk governance and ownership structure ensures oversight and accountability of the effective management of risk at the Bank. The Bank’sriskgovernanceismanifestedinasetofestablishedpolicies,proceduresandcontrolsthroughwhichtheexistingorganizationalstructure meets its strategic targets. This philosophy revolves around the knowledge of various risks and their willingness to accept the same commensurating with their risk appetite and strategic plan approved by the Board of Directors.

a) Organizational structure

AcohesiveorganizationalstructureisestablishedwithintheBankinordertoidentify,assess,monitor,andmitigaterisks.

b) Board of Directors

TheBoardofDirectors (“BOD”) is responsible for theoveralldirection,supervisionandcontrolof theBank.Oversightof theday-to-daymanagementoftheBankisconductedbytheBODcommittees,theChairmanandtheChiefExecutiveOfficer(“CEO”).TheBODhasoverallresponsibility fortheBankincludingapprovingandoverseeingthe implementationof itsstrategicobjectives,riskstrategy,corporate governance and corporate values within the agreed framework in accordance with relevant statutory and regulatory structures. The BOD currently comprises eight members.

c) Audit & Governance Committee of the board

The Audit &GovernanceCommittee (“AGC”) comprises threemembers of the Board and theHead of Internal Audit is the AGC’sSecretary. This AC is principally responsible for reviewing the internal audit program and assist the Board in carrying out its duties regardingtheintegrityoftheBank’sfinancialreportingsystem,adequacyoftheBank’sinternalcontrolandriskmanagementprocesses,tooverseetheexternalandinternalauditfunctions,andtheBank’scompliancewithlegalandregulatoryrequirements.

d) Nomination & Remuneration Committee of the board

TheNomination&RemunerationCommittee(“NRC”)comprisesthreemembersoftheBOD(includingtheChairman)andtheHeadofHuman Resources & Corporate Communications is the committee’s Secretary. NRC has the overall responsibility of setting the criteria andprocessesforidentificationofcandidatesfortheBoardlevelcommitteesandseniormanagement.TheCommitteealsoassiststheBoardofDirectorsinestablishingafairandtransparentprocessfortheremunerationofdirectors,otherBoardCommitteesandtheChiefExecutiveOfficerandoftheExecutiveManagement.TheCommitteeapprovesandoverseesrewarddesignandensuresthattherewardisappropriateandconsistentwiththeBank’sculture,businessandriskstrategy,performanceaswellaswithanylegalorregulatoryrequirements.NRCalsooverseastheBank’sHRpoliciesandrewardspolicyframework,corporategovernancepractices.Chairmanofthe NRC has been changed from Khalid Al Rumaihi to Tareq Al Saffar.

e) Investment & Credit Committee of the Board

TheInvestment&CreditCommittee(“ICC”)comprisesfourmembersoftheBOD.TheCommitteehasoverallresponsibilityofsettingthe criteria for managing credit and investment risks and oversee the investment and credit strategies and objectives of the Bank. The Committeeassists theBoardofDirectors inmanagingcredit riskandreviews internalcreditpolicies,grantsapprovals forcreditandinvestment facilities in addition to reviewing the quality and performance of the Bank’s lending portfolio and investment in line with the agreed risk appetite and best credit risk management practices.

f) Risk Committee of the Board

TheRiskCommittee(“RC”)comprisesthreemembersoftheBOD.TheCommitteehasoverallresponsibilityofoverseeingtheBank’senterprise risk management framework, approach and pertinent policies. The Committee recommends to the Board, guidelines inrelationtotheBank’scurrentandpotentialfutureriskexposuresandriskstrategy,determinationofriskappetiteincludingrisklimitsandtolerance levels as well as the Bank’s capital and liquidity strategy.

g) Executive Management

ExecutiveManagement is responsible for thedaytodayoperationstowardsachievingthestrategicgoalswithin thepre-definedriskappetite and approved strategy as a whole.

h) Management Executive Committee

TheManagement Executive Committee (“MEC”) is a seniormanagement level committee that has been entrustedwith the role ofsupporting the CEO to determine and implement the Bank’s strategic plan as approved by the BOD. The responsibilities of MEC include approving and monitoring the Bank’s various business activities in accordance with the strategic plan approved by the Board.

Inorder to fulfil its responsibilities, theCommitteehasappointedotherSub-Committeesanddelegatedspecific tasksandadequatepowersandauthoritiesforeffectivelyandefficientlycarryingouttheresponsibilitiesassignedtothem.Thecomposition,guidingprinciplesand detailed roles and responsibilities of MEC are covered in the MEC’s charter.





27. RISK MANAGEMENT (Continued)

i) Risk Executive Committee

TheRiskExecutiveCommittee(“REC”)hastheprimaryresponsibilityofoverseeingtheBank’sactivitiesinmanagingcreditrisk,marketrisk,liquidityrisk,operationalrisk,legalriskandotherrisks.REChastoensurethattheBankhasadequateriskmanagementframework,policies,proceduresandprocessesinplaceinordertoidentify,measure,monitor,mitigateandmanagerisksacrossallofitsoperations.

j) Asset and Liability Committee

The Assets and Liabilities Committee (“ALCO”) is mainly responsible for defining long-term strategic plans and short-term tacticalinitiativesfordirectingassetandliabilityallocationprudentlyfortheachievementoftheBank’sstrategicgoals.ALCOmonitorstheBank’sliquidityandmarketrisksandtheBank’sriskprofileinthecontextofeconomicdevelopmentsandmarketfluctuations,toensurethatthe Bank’s ongoing activities are compatible with the risk / reward guidelines approved by the Delegated Approval Authority / Board.

k) Credit Committee

TheCreditCommittee(“CC”)hastheresponsibilitytogrant/approvecreditfacilitiesaswithintheirDelegatedAuthorityandalsomakesdecisions relating to the execution of investments in line with the Banks investment strategy and management of credit and concentration risks. Proposals exceeding their Delegated Authority are escalated to the ICC for consideration.

l) Risk management

RiskManagementDepartment isan independent function responsible for thepreparation, implementationandupdating thepoliciesand procedures within the framework of the Bank’s strategy and in line with the guidelines of the CBB. They are also responsible for theidentificationandcontinuousevaluationofallsignificantrisks,designandimplementationofappropriateinternalcontrolstomitigatetherisksandtheprocessesinvolvedintheremedialfunction.TheriskmanagementdepartmentisoverseenbytheChiefRiskOfficer.

m) Legal Department

TheBankhasengagedapanel of external legal counsels to handle all legal cases initiated for recoveryof difficult loancases. TheprogressandoutcomesonsuchcasesaremonitoredbytheHeadofLegal.

n) Internal Audit Department

RiskManagementprocessesareauditedannuallybyInternalAudit,whichexaminestheadequacyofthecontrolsinplaceinadditiontocompliancewiththepoliciesbytherespectivedepartments.TheinternalauditresultsarediscussedwiththeMECandthefindings,togetherwithrecommendations,tomitigatethefindingsarepresentedtotheAudit&GovernanceCommitteeoftheBoard..

o) Treasury Department

The TreasuryDepartment is responsible for the day to day operations necessary to fundbanking activities and implementALCO’sstrategies in managing / optimizing interest rate and liquidity risks.

p) Risk Measurement and Reporting Systems

Monitoring and controlling risks is primarily performed based on the approved limits and the strong internal control structures established bytheBoard.ThelimitsreflectthebusinessstrategyandthemarketenvironmentinwhichtheBankoperatesaswellasthelevelofriskthat the Bank is willing to accept.

Strictassessmentprocessesarefactoredduringthereviewandapprovalprocesses.Inaddition,theBankmonitorsandmeasurestheoverallriskbearingcapacityinrelationtotheaggregateriskexposureacrossallrisktypesandactivities.Specificallytailoredriskreportsarepreparedanddistributedtoensurethatallbusinessdivisionshaveaccesstoextensive,necessaryandup-to-dateinformation.

QuarterlyupdatesareprovidedtotheBODandonamonthlybasistoallothermembersofthemanagementontheutilizationofmarketlimits,proprietaryinvestments,liquidityandotherdevelopments.

q) Risk Mitigation

Significantriskmitigationactivitiesarefocusedinthecreditarea.Theriskmitigationprocesscomprisesofanappropriateandadequatestructureforthecreditfacilitiesattheinitialstagefollowedbyongoingandregularmonitoring,enforceabledocumentationandcollateral.

The various risks to which the Group is exposed and how the Group manages them is discussed in the notes below.




28. CREDIT RISK

Creditrisk istheriskoffinancial losstotheGroupifacustomerorcounterpartytoafinancial instrumentfailstomeet itscontractualobligations,andarisesprincipallyfromtheGroup’sloansandIslamicfinancingtocustomers,placementsanddebtsecurities.

The Group’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance andmanagementofsomedegreeofriskorcombinationofrisks.Takingriskiscoretothebankingbusiness,andtheserisksareaninevitableconsequenceofparticipatinginfinancialmarkets.TheGroup’saimisthereforetoachieveanappropriatebalancebetweenriskandreturnandminimizepotentialadverseeffectsontheBank’sfinancialperformance.

TheGroup’sriskmanagementpolicies,proceduresandsystemsaredesignedtoidentifyandanalyzetheserisksandtosetappropriateriskmitigants andcontrols. TheBank reviews its riskmanagementpolicies and systemsonanongoingbasis to reflect changes inmarkets,productsandemergingbestpractices..

Risk management is performed by the Credit Risk Management Unit under policies approved by the Board of Directors. The Credit Risk ManagementUnitidentifiesandevaluatesfinancialrisksincloseco-operationwiththeBank’soperatingunits.ThemostimportanttypesofrisksidentifiedbytheBankarecreditrisk,liquidityriskandmarketrisk.Marketriskincludescurrencyrisk,profitraterisk,andpricerisk.

28.1 Credit risk

CreditriskisconsideredtobethemostsignificantandpervasiveriskfortheBank.TheBanktakesonexposuretocreditrisk,whichistheriskthatthecounter-partytoafinancialtransactionwillfailtodischargeanobligationcausingtheBanktoincurafinancialloss.Creditriskarisesprincipallyfromfinancing(creditfacilitiesprovidedtocustomers),depositsheldwithotherbanksandinvestmentsmadeindebttypeinstruments.Further,thereiscreditriskincertainoff-balancesheetfinancialinstruments,includingguaranteesrelatingtothepurchaseandsaleofforeigncurrencies,lettersofcredit,acceptancesandcommitmentstoextendthecredit.CreditriskmonitoringandcontrolisperformedbytheCreditRiskManagementUnit(CRMU)whichsetsparametersandthresholdsfortheBank’sfinancingactivities.

28.2 Significant Increase In Credit Risk (SICR)

To determinewhether credit risk has significantly increased since initial recognition, theGroup compares the risk of default at theassessment date with the risk of default at initial recognition. This assessment is to be carried out at each assessment date.

Using its expert credit judgmentand,wherepossible, relevanthistorical experience, theBankmaydetermine that anexposurehasundergoneasignificantincreaseincreditriskbasedonparticularqualitativeindicatorsthatitconsidersareindicativeofsuchanincreaseandwhoseeffectmaynototherwisebefullyreflectedinitsquantitativeanalysisonatimelybasis.TheBankmonitorstheeffectivenessof the criterion used to identify SICR by regular reviews and validations.

TheBankclassifiesitsfinancialinstrumentsintoStage1,Stage2andStage3,basedontheappliedmethodology,asdescribedbelow:

Stage 1: forfinancialinstrumentswheretherehasnotbeenaSICRsinceinitialrecognitionandthatarenotcredit-impairedonorigination,theBankrecognisesanallowancebasedonthe12-monthECL.AllaccountsatoriginationareclassifiedasStage1.

Stage 2: forfinancialinstrumentswheretherehasbeenaSICRsinceinitialrecognitionbutarenotcredit-impaired,theBankrecognisesanallowanceforthelifetimeECLforallfinancingsandloanscategorisedinthisstagebasedontheactual/expectedmaturityprofileincluding restructuring or rescheduling of facilities.

Stage 3: forfinancialinstrumentswheretherehasbeenaSICRsinceinitialrecognitionbutarenotcredit-impaired,theBankrecognisesanallowanceforthelifetimeECLforallfinancingsandloanscategorisedinthisstagebasedontheactual/expectedmaturityprofileincluding restructuring or rescheduling of facilities.





28. CREDIT RISK (Continued)

28.3 Measurement of ECL

ECLisaprobability-weightedestimateofcreditlosses.Itismeasuredasfollows:

Type of financial instrument Measurement basis

a)Financialassetsthatarenotcredit-impairedatthereportingdate As the present value of all cash shortfalls (i.e. the differencebetweenthecashflowsduetotheentityinaccordancewiththecontractandthecashflowsthattheBankexpectstoreceive).

b)Financialassetsthatarecredit-impairedatthereportingdate As the difference between the gross carrying amount and the presentvalueofestimatedfuturecashflows.

c)Irrevocableundrawncommitments As the present value of the difference between the contractual cashflowsthatareduetotheBankifthecommitmentisdrawndownandthecashflowsthattheBankexpectstoreceive.

d)Lettersofcreditandbankguarantees As the expected payments to reimburse the holder less any amounts that the Bank expects to recover.

TheBankmeasuresanECLatanindividual instrumentleveltakingintoaccounttheprojectedcashflows,ProbabilityofDefault(PD),LossGivenDefault(LGD),CreditConversationFactor(CCF)anddiscountrate.

ThekeyinputsintothemeasurementofECLarethetermstructureofthefollowingvariables:

a) ProbabilityofDefault(PD);

b) LossGivenDefault(LGD);and

c) ExposureAtDefault(EAD).

Theseparametersaregenerallyderivedfrominternallydevelopedstatisticalmodelsandotherhistoricaldata.Theyareadjustedtoreflectforward-looking information as described above.

LinearRegressionhasbeenusedtodevelopmacroeconomicmodelsspecifictoportfoliosofthebank.DepartmentvariablehasbeenthedefaultratespecifictoportfoliosandindependentvariablesconsideredareMacrovariables.

TheModellingmethodologyadoptedbytheBankinvolvedasystematicapproachwithstatisticallyrigorousanalyses’toarriveatthefinalmodelforeachoftheportfolios.Theunderlyingdevelopmentprocessinvolvedstepsofdatatransformation,variablereduction,modelperformance,checkforvariablecollinearityetc.

LGDisthemagnitudeofthelikelylossifthereisadefault.TheBankestimatesLGDparametersbasedonthehistoryofrecoveryratesofclaimsagainstdefaultedcounterparties.TheLGDmodelsconsiderthestructure,collateral,seniorityoftheclaim,counterpartyindustryandrecoverycostsofanycollateralthatisintegraltothefinancialasset.

EAD represents the expected exposure in the event of a default. The Bank derives the EAD from the current exposure to the counterparty andpotentialchangestothecurrentamountallowedunderthecontractincludingamortization.TheEADofafinancialassetisitsgrosscarryingamount.Forundrawncommitments,lettersofcreditandbankguarantees,theEADrepresentsthepotentialfutureamountsthatmaybedrawnunderthecontract,whichareestimatedbasedonhistoricalobservationsandforward-lookingforecasts.

The period of exposure limits the period over which possible defaults are considered and thus affects the determination of PDs and measurementofECLs(especiallyforStage2accountswithlifetimeECL).

Subjecttousingamaximumofa12-monthPDforfinancialassetsforwhichcreditriskhasnotsignificantlyincreased,theBankmeasuresECLconsideringtheriskofdefaultoverthemaximumcontractualperiod(includinganyborrower’sextensionoptions)overwhichit isexposedtocreditrisk,evenif, forriskmanagementpurposes,theBankconsidersa longerperiod.Themaximumcontractualperiodextends to the date at which the Bank has the right to require repayment of an advance or terminate a loan commitment or guarantee.

Forfacilitiesthat includebothadrawnandanundrawncommitmentcomponent,theBankmeasuresECLoveraperiod longerthanthe maximum contractual period if the Bank’s contractual ability to demand repayment and cancel the undrawn commitment does not limittheBank’sexposuretocreditlossestothecontractualnoticeperiod.Thesefacilitiesdonothaveafixedtermorrepaymentstructureand are managed on a collective basis. The Bank can cancel them with immediate effect but this contractual right is not enforced in the normal day-to-day management but only when the Bank becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Bank expects to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and / or turning the outstanding balance into a loanwith fixedrepayment terms.





28.4 Generating the term structure of PD

The Bank collects performance and default information about its credit risk exposures analyzed by type of product and borrower as well as by credit risk grading.

The Bank employs statistical models to analyze the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.

Thisanalysisincludestheidentificationandcalibrationofrelationshipsbetweenchangesindefaultratesandmacro-economicfactorsas well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For mostexposures,keymacro-economicindicatorsinclude:grossdomesticproduct/economicgrowth,interestrates,unemploymentratesandinflation.

Basedonconsiderationofavarietyofexternalactualandforecast information, theBankformulatesa‘basecase’viewof thefuturedirectionofrelevanteconomicvariablesaswellasarepresentativerangeofotherpossibleforecastscenarios(i.e.onincorporationofforward-lookinginformation).TheBankthenusestheseforecaststoadjustitsestimatesofPDs.

For the financingportfolio, through the yearly reviewof thecorporateportfolio, theBankobserves yearlyperformances tocompute a count based PD over the one year horizon for the past 5 years.

PDs for each segment are measured using observed default estimation and PD is calculated based on a DPD bucket level for each segmentseparately.Underthisanalysis,thedelinquencystatusofaccountsistrackedatanintervalofoneyearwithamovingmonthcycle. A minimum of 5 year DPD data is considered.

28.5 Restructured financial assets

Where possible, theGroup seeks to restructure loans rather than to take possession of collateral. Thismay involve extending thepaymentarrangementsandtheagreementofnewloanconditions.Oncethetermshavebeenrenegotiated,anyimpairmentismeasuredusingtheoriginaleffectiveinterestrateascalculatedbeforethemodificationoftermsandtheloanisnolongerconsideredpastdue.Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur.

In project finance, there could be delays in implementation of the project and in some cases, the projectsmay take a longer timeto generate surplus. The Bank has in such cases, where there is a genuine need and commitment from the customer, approved a restructuring.

Maximum tenor of the facility post restructuring does not exceed 15 years from the first disbursement of the facility. As has beenprescribedbytheCBB,restructuredaccountsaretransferredtoStage2directlyforaminimumperiodof12months.

28.6 Credit-impaired financial assets

Ateachreportingdate,theBankassesseswhetherfinancialassetscarriedatamortisedcostarecredit-impaired.Afinancialasset is‘credit-impaired’whenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthefinancialassethaveoccurred.






28.7 Definition of ‘Default’ and ‘Cure’

TheBank’sdefinitionofdefault isalignedwithregulatoryguidelinesandinternalCreditRiskManagementpractices.DefaultedassetswillfallundertheStage3.Ingeneral,acounterpartyisconsideredindefaultandhencearelevantfinancialassetoragroupoffinancialassetsisimpairedif,andonlyif,thereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.Itmaynotbepossibletoidentifyasingle,discreteeventthatcausedtheimpairment;ratherthecombinedeffectofseveraleventsmayhavecausedtheexpectedcreditlossesasaresultoffutureevents,nomatterhowlikely,arenotrecognised.Objectiveevidencethatafinancialassetorgroupofassetsisimpairedincludesobservabledatathatcomestotheattentionoftheholderoftheasset.Thefollowingarecertainindicatorstoidentifytheimpairmentofassets(indicatorsarenotnecessarilytobeobservedonanindividualbasis):

a) significantfinancialdifficultyoftheissuerortheobligor;

b) materialbreachoffacilitycovenants,conditionsandcontract(subjecttomanagementdiscretion);

c) grant to the borrower a concession that the lender would not otherwise consider except for economic or legal reasons relating to theborrower’sfinancialdifficulty;

d) imminentbankruptcyorotherfinancialreorganizationoftheborrower;

e) significantdowngradingincreditratingbyanexternalcreditratingagency;

f) disappearanceofanactivemarketbecauseoffinancialdifficulties;

g) presenceofpastduecontractualpaymentsofeitherprincipalorprofit;or/and

h) deterioration in the value of security and likelihood of successfully realising it.

Ingeneral,counterpartieswithfacilitiesexceeding90dayspastduesareconsideredindefault.

Afinancial instrument isconsideredas‘cured’andthereforere-classifiedoutofStage3whennoneofthedefaultcriteriahavebeenpresent for at least twelve consecutive months. The decision whether to classify an asset as Stage 2 or Stage 1 once cured depends on theupdatedcreditreview,atthetimeofthecure,andwhetherthisindicatestherehasbeenasignificantincreaseincreditriskcomparedto initial recognition.

28.8 Incorporation of forward looking assumptions

The Bank incorporates forward-looking assumptions into both its assessment of whether the credit risk of an instrument has increased significantlysinceitsinitialrecognitionanditsmeasurementofECL.TheBankannuallysourcesmacro-economicforecastdataforvariousvariablesfrommanydatabasesincludingtheInternationalMonetaryFund(IMF)databaseforBahrain,Bloomberg,ReutersandWorldBank.

Macro-economicvariablesarecheckedforcorrelationwiththePDforthepastfiveyearsandonlythosevariablesforwhichthemovementcan be explained are used. Management judgment is exercised when assessing the macroeconomic variables.

i) Limits and concentrations

Limitsareassignedforeachindividualcounterpartygroupandforeachindustrialsegment.TheBankalsomonitorscreditexposures,andcontinuallyassessesthecreditworthinessofcounterpartiestothetransactions.Inaddition,theBankobtainssecurity,whereappropriate,entersintomasternettingagreementsandcollateralarrangementswithcounterparties,andlimitsthedurationofexposures.

Concentrationsarisewhenanumberofcounterpartiesareengagedinsimilarbusinessactivities,orhavesimilareconomicfeaturesthatwouldcausetheirabilitytomeetcontractualobligationstobesimilarlyaffectedbychangesineconomic,politicalorotherconditions.Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographic location.

Inordertoavoidexcessiveconcentrationsofrisk,theBank’spoliciesandproceduresincludespecificguidelinestofocusonmaintainingadiversifiedportfolio.Identifiedconcentrationsofcreditrisksarecontrolledandmanagedaccordingly.





28.8 Incorporation of forward looking assumptions (continued)

ii) Maximum exposure to credit risk without taking account of any collateral

The table below shows the maximum exposure to credit risk as at the reporting date.

2020BD ’000

2019BD ’000

Balances with Central Bank of Bahrain 2,391 1,709Placementwithbanksandotherfinancialinstitutions 3,722 14,850Islamicfinancingandloanstocustomers 146,630 76,731Investment securities 50,581 35,666Other assets 3,550 2,148

206,874 131,104Contingent liabilities 1,530 1,507Commitments 1,450 3,557

2,980 5,064Maximum credit risk exposure 209,854 136,168

iii) External credit assessment

The Bank does not use any external credit assessment institutions and the risk rating for the exposures are based on the internal credit framework and policy guidelines of the Bank.

iv) Concentration of credit risk

SincetheGroup’soperationsarerestrictedonlytotheKingdomofBahrain,itisprimarilyeffectedbythechangesintheeconomicandother conditions prevailing in the Kingdom of Bahrain.

2020BD ’000

2019BD ’000

Industry sectorBanksandfinancialinstitutions 56,694 52,225Trading and manufacturing 91,639 48,688Education and health 8,681 6,777Hospitality,mediaandtransportation 14,454 8,392Fisheries,agricultureanddairy 5,390 6,216Food processing 8,641 1,587Others 24,355 12,283

209,854 136,168

v) Collateral and other credit enhancements

The amount and type of collateral required depends on an assessment of the facility structure and the associated credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateralobtainedarecashmargin,bankguaranteesandrealestatetitledeeds.

Market value of collateral is closely monitored by the Bank in addition to requesting additional collateral in accordance with the underlying agreementandevaluationoftheadequacyoftheallowanceforimpairment/ECL.

It is the Bank’s policy to normally dispose off repossessed collateral in an orderly fashion after due notice has been provided to the defaulting customer. The proceeds are used to reduce or settle the outstanding claim. The Bank did not occupy repossessed properties foritsownbusinessuse,asatthereportingdate.







v) Collateral and other credit enhancements (continued)

The Group holds collateral and other credit enhancements against certain of its credit exposures.The Group closely monitors collateral heldforfinancialassetsconsideredtobecredit-impaired,asitbecomesmorelikelythattheGroupwilltakepossessionofthecollateralto mitigate potential credit losses. Financial assets that are credit-impaired and related collateral held in order to mitigate potential losses are shown below:

2020

Gross Exposures

Expected Credit Loss

Carrying Amount

FV of Collateral Held

Guarantee Available

BD 000 BD 000 BD 000 BD 000 BD 000Projectfinance-Islamic 16,922 10,767 6,155 2,127 4,709 Projectfinance-conventional 10,055 2,635 7,420 6,490 - Fisheries and agriculture 1,193 41 1,152 - - Other loans 534 531 3 - - Total 28,705 13,974 14,731 8,617 4,709

2019

Gross exposure

Expected CreditLoss

Carrying Amount

FVof Collateral Held

Guarantee Available

BD 000 BD 000 BD 000 BD 000 BD 000

Projectfinance-Islamic 19,372 12,817 6,555 6,057 5,791Projectfinance-conventional 15,642 7,490 8,152 10,977 - Fisheries and agriculture 1,733 41 1,692 - 1,692Other loans 921 919 2 - - Total 37,668 21,268 16,400 17,034 7,483

vi) Carrying amount per class of financial assets whose terms have been renegotiated

TheGroup sometimesmakesconcessionsormodifications to theoriginal termsof loans as a response to theborrower’s financialdifficulties,ratherthantakingpossessionortootherwiseenforcecollectionofcollateral.TheGroupconsidersaloanforbornewhensuchconcessionsormodificationsareprovidedasaresultoftheborrower’spresentorexpectedfinancialdifficultiesandtheGroupwouldnothaveagreedtothemiftheborrowerhadbeenfinanciallyhealthy.Thetablebelowshowsthecarryingamountforrenegotiatedfinancialassets during the year.

2020BD ’000

2019BD ’000

Islamicfinancingandloanstocustomers 2,603 417






vii) Credit quality per class of financial assets

The following table sets out information about the credit quality of financial assetsmeasured at amortised cost. Unless specificallyindicated,forfinancialassets,theamountsinthetablerepresentgrosscarryingamounts.

2020 2019

Stage 112-months

ECLBD ’000



Stage 3Lifetime

ECL creditimpairedBD ’000

TotalBD ’000

TotalBD ’000

Placement with banks and other financial institutions 3,727 - - 3,727 14,937

Less:AllowanceforECL (5) - - (5) (87) 3,722 - - 3,722 14,850

Islamic financing and loans to customers

Corporate 74,200 2,255 17,561 94,016 55,318SME 38,305 616 5,731 44,652 19,637Small business 13,377 312 3,237 16,926 16,762Taxi loans - - 21 21 59 Education loans 241 - 434 675 1,612Overdrafts 1,486 - 528 2,014 1,115Others 2,438 60 1,193 3,691 4,334

130,047 3,243 28,705 161,995 98,837Less:AllowanceforECL (962) (429) (13,974) (15,365) (22,106)

129,085 2,814 14,731 146,630 76,731Contingent liabilities and commitmentsLettersofcreditandbankguarantees 1,530 - - 1,530 1,507Undrawn commitments 1,450 - - 1,450 3,557Less:AllowanceforECL (96) - - (96) (352)

2,884 - - 2,884 4,712Other assets 17 17 3,084 3,118 3,136Less:AllowanceforECL (12) (8) (3,067) (3,087) (3,047)

5 9 17 31 89

29. MARKET RISK

Marketriskistheriskoflossattributabletoadversechangesinthevaluesoffinancialinstruments,whetheronoroff-balancesheet,asaresultofchangesinmarketrates(suchasinterestratesandforeignexchangerates)orprice.

i) Interest rate risk

Interestrateriskarisesfromthepossibilitythatchangestotheinterestrateswillaffectfutureprofitabilityorthefairvaluesofthefinancialinstruments. The Bank is exposed to interest rate risk due to mismatches of interest rate repricing of assets and liabilities. Positions are monitored periodically to ensure that this is maintained within the established limits.





29. MARKET RISK (Continued)

i) Interest rate risk (continued)

TheBankprimarilydealswith4currencies,namelyBahrainiDinars,KuwaitiDinars,SaudiRiyalsandUnitedStatesDollars,inwhichtheBank’sinterestsensitivefinancialinstrumentsaredenominatedpredominantly.ThefollowingtabledemonstratestheBank’ssensitivitytoareasonablepossiblechangeininterestrates,withallothervariablesheldconstant.

Change in basis points

Impact of change on

net interest IncomeChange in

basis points

Impact of change on

net interest Income

2020 2019 2020 2019BD ’000 BD ’000 BD ’000 BD ’000

Bahraini Dinars +100 964 1,074 -100 (964) (1,074)Kuwaiti Dinars +100 - 1 -100 - (1)Saudi Riyals +100 (144) (1) -100 144 1 United States Dollars +100 (205) (327) -100 205 327

ii) Currency risk

Currency risk is the risk that the valueof the financial instrumentwill fluctuatedue tochanges in foreignexchange rates.Netopenpositions are monitored on a daily basis to ensure compliance within the established limits.

TheBankviewstheBahrainiDinarasitsfunctionalcurrency.IntheopinionoftheBank’smanagement,thecurrencyriskforanypositionheld inUSdollar is insignificantsincetheBahrainiDinar ispeggedtotheUSdollar.TheBankhadthe followingsignificantnetopenexposures denominated in foreign currencies as of 31 December 2020 and 2019:

Equivalent long / (short)

2020 2019

Kuwaiti Dinars 7 65 US Dollars (165) (78)Euro 1 6 GBP 4 7 Saudi Riyals (97) 57 UAE Dirhams 19 4

iii) Derivatives

Aderivativeisafinancialcontractbetweentwopartieswherepaymentsaredependentuponmovementsinthepriceofoneormoreunderlyingfinancialinstrument,referencerateorindex.Intheordinarycourseofbusiness,theGroupentersintoforexforwardcontracts.The use of derivatives is governed by the Group’s policies approved by the Board of Directors. The Group enters into derivative contracts for the purpose of reducing risks from potential movements in foreign exchange rates. The Group has entered into forex forward contractswiththeCentralBankofBahrainwithanominalvalueofBD34,978thousand(31December2019:BD27,808thousand).

30. EQUITY PRICE RISK

Equity price risk is the risk that the fair values of equities or managed funds decrease as a result of changes in the corresponding value ofequityindicesorthevalueofindividualequitystocks.TheGroupmanagesthisriskthroughdiversificationofinvestmentsintermsofgeographical distribution and industry concentration.

Theeffectonprofitorloss(asaresultofachangeinthefairvalueofequityinstrumentsheldasFVTPL)duetoareasonablypossiblechangeinequityindices,withallothervariablesheldconstant,isasfollows:

Trading Equities EffectonProfitorLoss

2020BD ’000

2019BD ’000

% changein Index

Total2020

BD ’000

Total2019

BD ’000

Bahrain Bourse 1 1 ± 15% 0 0




31. MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The tablebelowsummarises thematurityprofileof theGroup’sassets and liabilities asat 31December2020and2019basedonexpected maturities.

Up to 1 month

BD ’000

1 to 3 monthsBD ’000

3 to 6 monthsBD ’000

6 months to 1 yearBD ’000

1 to 3 years

BD ’000

Over 3 years

BD ’000Total

BD ’000

Carrying amountBD ’000

31 December 2020AssetsCash and balances with Central

Bank of Bahrain 2,568 - - - - - 2,568 2,568 Placements with banks and other financialinstitutions 3,722 - - - - - 3,722 3,722

Islamicfinancingandloans to customers 5,238 8,901 24,501 54,035 79,263 65,970 237,908 146,630

Investment securities 50,581 - - - - 5,783 56,364 56,364 Investment in associates - - - - - 374 374 374 Investment properties - - - - - 11,071 11,071 11,071 Property and equipment - - - - - 1,926 1,926 1,926 Other assets - - 3,828 - - - 3,828 3,828 Total assets 62,109 8,901 28,329 54,035 79,263 85,124 317,761 226,483 LiabilitiesTerm loans - 251 - 251 13,972 20,830 35,304 35,304 Deposits 15,233 2,541 1,315 752 94 98,095 118,030 118,030 Other liabilities - - 4,444 - - - 4,444 4,444 Total liabilities 15,233 2,792 5,759 1,003 14,066 118,925 157,778 157,778 Net liquidity gap 46,876 6,109 22,570 53,032 65,197 (33,801)Cumulative liquidity gap 46,876 52,985 75,555 128,587 193,784 159,983

Up to 1 month

BD ’000

1 to 3 months

BD ’000

3 to 6 months

BD ’000

6 months to 1 yearBD ’000

1 to 3 years

BD ’000

Over 3 years

BD ’000Total

BD ’000

Carrying amount

BD ’00031 December 2019AssetsCash and balances with Central

Bank of Bahrain 1,976 - - - - - 1,976 1,976Placements with banks and other financialinstitutions 7,274 5,125 - 2,451 - - 14,850 14,850

Islamicfinancingandloanstocustomers 3,582 7,428 9,506 14,566 45,258 19,357 99,696 76,731

Investment securities 35,666 - - - - 5,781 41,447 41,447Investment in associates - - - - - 322 322 322 Investment properties - - - - - 11,527 11,527 11,527Property,plantandequipment - - - - - 1,991 1,991 1,991Other assets - - 2,416 - - - 2,416 2,416Total assets 48,498 12,553 11,921 17,017 45,258 38,978 174,225 151,260LiabilitiesTerm loans - 251 3,242 3,493 13,972 21,335 42,293 42,293Deposits 11,466 7,933 3,464 524 36 11,495 34,918 34,918Other liabilities - - 4,723 - - - 4,723 4,723Total liabilities 11,466 8,184 11,429 4,017 14,008 32,830 81,934 81,934Net liquidity gap 37,032 4,369 492 13,000 31,250 6,148Cumulative liquidity gap 37,032 41,401 41,894 54,894 86,144 92,291





32. LIQUIDITY RISK

LiquidityriskistheriskthattheGroupwillencounterdifficultyinmeetingobligationsassociatedwithitsfinancialliabilitiesthataresettledbydeliveringcashoranotherfinancialasset.

ThetablebelowsummarisesthematurityprofileoftheBank’sfinancialliabilitiesat31December2020and2019basedonthecontractualundiscounted repayment obligations. See note 32 for the expected maturities of these liabilities.

OndemandBD ’000

Up to 1month

BD ’000

1 to 3monthsBD ’000


6 monthsto 1 yearBD ’000

1 to 3years

BD ’000

Over3 years

BD ’000Total

BD ’000

31 December 2020Term loans - - 327 - 324 34,775 26,968 62,394 Deposits 15,155 79 2,567 1,344 766 96 98,097 118,104 Other liabilities - - - 4,444 - - - 4,444 Total liabilities 15,155 79 2,894 5,788 1,090 34,871 125,065 184,942

OndemandBD ’000

Up to 1month

BD ’000

1 to 3months

BD ’000

3 to 6months

BD ’000

6 monthsto 1 yearBD ’000

1 to 3years

BD ’000

Over3 years

BD ’000

TotalBD ’000

31 December 2019Term loans - - 332 8,785 8,997 34,795 27,599 80,508Deposits 11,774 5,521 2,491 3,473 533 37 11,495 35,324Other liabilities - - - 4,723 - - - 4,723Total liabilities 11,774 5,521 2,823 16,981 9,530 34,832 39,094 120,555

ThetablebelowsummarisesthematurityprofileoftheBank’scontingentliabilitiesandcommitmentsat31December2020and2019based on the contractual undiscounted repayment obligations.

OndemandBD ’000

Less than3 months

BD ’000


1 to 5years

BD ’000Total

BD ’000

31 December 2020Contingent liabilities 363 465 456 246 1,530 Commitments 1,450 - 617 1,700 3,767 Capital expenditure - 53 1,074 1,054 2,181 Total 1,813 518 2,147 3,000 7,478 31 December 2019Contingent liabilities 337 195 330 645 1,507Commitments 3,557 - 2,746 - 6,303Total 3,894 195 3,076 645 7,810

2020 2019

Liquidity Coverage Ratio 491% 420%

The Bank expects that not all of the commitments will be drawn before expiry of the commitments.




33. OPERATIONAL RISK

Legal risk is the riskarising fromthepotential thatunenforceablecontracts, lawsuitsoradverse judgmentscandisruptorotherwisenegatively affect the operations of the Group. The Group has developed controls and procedures to identify legal risks and believes that losses,ifanywillnotbematerial.

Operational risk is theexposure to loss resulting from inadequateor failed internalprocesses,peopleandsystems,or fromexternalevents.TheGrouphasclearlydefinedoperationsproceduresforeachofitsproductsandservices.Italsohascomputersystemsthatenable it to run operations with speed and accuracy. The operational risk management unit operates independently from other units of theBankand reports to theChiefRiskOfficer. It conducts regular reviewsofallbusinessareasof theBankand reportscontroldeficienciesandexceptionstotheBank’spoliciesandprocedures.Italsorecommendsmeasurestomitigateoperationalrisk,whichareimplemented by management immediately. The Bank also has a contingency plan to take care of any failure of its computer systems. Regularback-upsaremadeforallimportantdatasets,andstoredoutsidetheBank’spremises.Thisensuresthatincaseofanysystemfailure,theBankwillbeabletocontinueitsoperationswithoutlosingcriticaldataorbusinesstransactions.Aspartofitsdisasterrecoveryplan,theBankhasestablishedaback-upsitewhichwouldoperateduringanemergency.

TheBankhasaspecificBusinessContinuityPlan(“BCP”)team.ThemainobjectiveoftheBCPistoensurethatintheeventoffullorpartialdisaster,theBankshouldbeabletocontinueprovidingessentialservicestocustomersminimizinganyadverseeffectsontheBank’sbusiness,throughbusinessimpactanalysis,businessrestorationplansandprocedures,fortheidentifiedcriticalfunctions.TheBank is conducting risk and control self assessments and capturing operational loss data in accordance with Basel III / CBB guidelines.

34. CAPITAL ADEQUACY

Theriskassetratio,calculatedinaccordancewiththecapitaladequacyguidelinesapprovedbytheCBB,fortheBankisasfollows:

2020BD ’000

2019BD ’000

Capital baseTier 1 capital 71,637 69,344Tier 2 capital 1,194 1,233Totalcapitalbase(a) 72,831 70,577Risk-weightedassets(b) 114,089 134,416Capitaladequacyratio(a/b*100) 63.84% 52.51%Minimum requirement 12.5% 12.5%

TheCBBsetsandmonitorscapitalrequirementsfortheBankasawhole.Inimplementingcurrentcapitalrequirements,theCBBrequiresthe Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. The capital adequacy regulations of the CBB are based on the principles of Basel III of the IFSB guidelines.





34. CAPITAL ADEQUACY (Continued)

The Bank’s regulatory capital is analysed into two tiers:

•Tier1capital,includesCET1andAT1.

CET1compriseofordinarysharecapital thatmeet theclassificationascommonshares for regulatorypurposes,disclosed reservesincludingsharepremium,generalreserves,legal/statutoryreserve,commonsharesissuedbyconsolidatedbankingsubsidiariesoftheBankandheldbythirdparties,retainedearningsafterregulatoryadjustmentsrelatingtogoodwillanditemsthatareincludedinequitywhich are treated differently for capital adequacy purposes.

AT1compriseofinstrumentsthatmeetthecriteriaforinclusioninAT1,instrumentsissuedbyconsolidatedbankingsubsidiariesoftheBankheldbythirdpartieswhichmeetthecriteriaofAT1,andregulatoryadjustmentsappliedincalculationofAT1.

Tier2capital,includesinstrumentsissuedbytheBankthatmeetthecriteriaforinclusioninTier2capital,stocksurplusresultingfromissueofTier2capital,instrumentsissuedbyconsolidatedbankingsubsidiariesoftheBankheldbythirdpartiesthatmeetthecriteriaforinclusioninTier2,generalprovisionsheldagainstunidentifiedlossesonfinancingandqualifyforinclusionwithinTier2,assetrevaluationreservefromrevaluationoffixedassetsandinstrumentspurposesandregulatoryadjustmentsappliedinthecalculationofTier2capital.

TheregulatoryadjustmentsaresubjecttolimitsprescribedbytheCAmodule,thesedeductionswouldbeeffectiveinaphasedmannerthrough transitional arrangements from 2015 to 2018. The regulations prescribe higher risk weights for certain exposures that exceed materialitythresholds.Theseregulatoryadjustmentsarerequiredforcertainitemssuchasgoodwillonmortgageserviceright,deferredtaxassets,cashflowhedgereserve,gainonsaleofrelatedsecuritizationtransactions,definedbenefitpensionfundassetsandliabilities,investmentinownsharesandreciprocalcrossholdingsinthecapitalofBankingandfinancialentities,investmentinthecapitalofBankingandfinancialentitiesthatareoutsidethescopeofregulatoryconsolidationandwherethebankdoesnotownmorethan10%ofissuedcommonsharecapitaloftheentityandsignificantinvestmentsinthecapitalofbankingandfinancialentitiesthatareoutsidethescopeof regulatory consolidation.

Bankingoperations are categorisedas either tradingbookorbankingbook, and risk-weightedassets aredeterminedaccording tospecifiedrequirementsthatseektoreflectthevaryinglevelsofriskattachedtoassetsandoff-balancesheetexposures.

Capital management

The primary objectives of the Bank’s capital management are i) to ensure that the Bank complies with externally imposed capitalrequirementsii)maintainhealthycapitalratiosinordertosupportitsbusinessandiii)tomaximiseshareholders’value.TheBankmanagesits capital structure and makes adjustments to it in the light of changes in business conditions and the risk characteristics of its activities. Inordertomaintainoradjustthecapitalstructure,theBankmayadjusttheamountofdividendpaymenttoshareholdersorissuecapitalsecurities.




35. CLASSIFICATION OF ASSETS AND LIABILITIES

The following table provides a reconciliation between line items in the statement of financial position and categories of financialinstruments.

Designated as at FVTPL

BD ’000

FVOCI – sukuk/debt instruments

BD ’000

FVOCI– equity

instrumentsBD ’000

Amortisedcost / others

BD ’000Total

BD ’000

31 December 2020AssetsCash and balances with Central Bank

of Bahrain - - - 2,568 2,568 Placements with banks and other financialinstitutions - - - 3,722 3,722

Islamicfinancingandloanstocustomers - - - 146,630 146,630 Investment securities 5,657 24,105 126 26,476 56,364 Investment in associates - - - 374 374 Investment properties - - - 11,071 11,071 Property and equipment - - - 1,926 1,926 Other assets - - - 3,828 3,828 Total assets 5,657 24,105 126 196,595 226,483 LiabilitiesTerm loans - - - 35,304 35,304 Deposits - - - 118,030 118,030 Other liabilities - - - 4,444 4,444 Total liabilities - - - 157,778 157,778

The following table provides a reconciliation between line items in the statement of financial position and categories of financialinstruments.

Designated asatFVTPL

BD ’000

FVOCI– debt


FVOCI– equity


Amortisedcost / others

BD ’000Total

BD ’000

31 December 2019AssetsCash and balances with Central Bank

of Bahrain - - - 1,976 1,976Placements with banks and other financialinstitutions - - - 14,850 14,850

Islamicfinancingandloanstocustomers - - - 76,731 76,731Investment securities 5,600 24,019 181 11,647 41,447Investment in associates - - - 322 322 Investment properties - - - 11,527 11,527Property and equipment - - - 1,991 1,991Other assets - - - 2,416 2,416Total assets 5,600 24,019 181 121,460 151,260LiabilitiesTerm loans - - - 42,293 42,293Deposits - - - 34,918 34,918Other liabilities - - - 4,723 4,723Total liabilities - - - 81,934 81,934





36. CAPITAL MODIFICATION LOSS AND GOVERNMENT ASSISTANCE

Duringthecurrentyear,basedonaregulatorydirectiveissuedbytheCBB(refernote2.1)asconcessionarymeasurestomitigatetheimpactofCOVID-19,theone-offmodification lossesamountingtoBD2,360thousandarisingduetothe6-monthpaymentholidaysprovidedtofinancingcustomerswithoutchargingadditional interesthasbeenrecognizeddirectlyinequity.Themodificationlosshasbeencalculatedasthedifferencebetweenthenetpresentvalueofthemodifiedcashflowscalculatedusingtheoriginaleffectiveinterestrateandthecurrentcarryingvalueofthefinancialassetsonthedateofmodification.TheBankprovidedpaymentholidaysonfinancingexposures amounting to BD 62 million as part of its support to impacted customers.

Further,aspertheregulatorydirective,financialassistanceamountingtoBD684thousand(representingspecifiedreimbursementofaportionofstaffcosts,utilities&landrent)receivedfromthegovernment, inresponsetoitsCOVID-19supportmeasures,hasbeenrecognized directly in equity. Thus the net amount from theModification loss and government assistance amounted to BD 1,675thousand.

37. COMPARATIVE FIGURES

Certainoftheprioryearfigureshavebeenreclassifiedtoconformtothecurrentyearpresentation.Suchreclassificationsdidnotaffectpreviouslyreportednetloss,totalassets,totalliabilitiesandtotalequityoftheGroup.




38. NET STABLE FUNDING RATIO

TheNSFR(asapercentage)asat31December2020iscalculatedasfollows:

Unweighted Values (i.e. before applying relevant factors)

Item

No specified

maturityLess than 6 months

More than 6 months

and less than one year

Over one

year

Total weighted

value

Available Stable Funding (ASF):Capital:Regulatory Capital 71,632 1,242 72,874Other Capital InstrumentsRetail deposits and deposits from small

business customers:Stable depositsLessstabledepositsWholesale funding:Operational depositsOther wholesale funding 19,340 1,003 132,991 143,163Other liabilities:NSFR derivative liabilitiesAll other liabilities not included in the

above categories 4,444Total ASF 71,632 23,784 1,003 134,233 216,037Required Stable Funding (RSF):Total NSFR high-quality liquid assets (HQLA) 53,372 2,524

Depositsheldatotherfinancialinstitutionsfor operational purposes

Performing financing and loans / securities:Performingloanstofinancialinstitutionssecuredbynon-level1HQLAandunsecuredperformingloanstofinancialinstitutions 3,397 510

Performingloanstonon-financialcorporateclients,loanstoretailandsmallbusinesscustomers,andloanstosovereigns,centralbanksandPSEs,ofwhich: 19,590 5,171 12,381

With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines 107,137 91,066

Performingresidentialmortgages,ofwhich:With a risk weight of less than or equal to

35% under the CBB Capital Adequacy Ratio Guidelines

Securities that are not in default and do not qualifyasHQLA,includingexchange-traded equities

Other assets:Physicaltradedcommodities,includinggold





38. NET STABLE FUNDING RATIO (Continued)

Unweighted Values (i.e. before applying relevant factors)

No specified

maturityLess than 6 months

More than 6 months


Over one

year

Total weighted

value

Assets posted as initial margin for for derivative contracts and contributions to default funds of CCPs

NSFR derivative assetsNSFR derivative liabilities before deduction

of variation margin postedAll other assets not included in the above

categories 37,816 37,816OBS items 42,626 2,131Total RSF 133,814 22,987 5,171 107,137 146,428NSFR (%) - As at 31 December 2020 148%





TheNSFR(asapercentage)asat31December2019iscalculatedasfollows:

UnweightedValues(i.e.beforeapplyingrelevantfactors)

Nospecified

maturityLessthan 6 months

More than 6 months


Over one

year

Total weighted

value

Available Stable Funding (ASF):Capital:Regulatory Capital 68,690 1,232 69,922Other Capital Instruments - Retail deposits and deposits from small

business customers:Stable deposits - Lessstabledeposits 5,467 4,920Wholesale funding:Operational deposits - Other wholesale funding 20,894 4,017 46,837 59,293Other liabilities:NSFR derivative liabilities -All other liabilities not included in the

above categories 4,578 -Total ASF 68,690 30,939 4,017 48,069 134,135Required Stable Funding (RSF):Total NSFR high-quality liquid assets (HQLA) 37,413 1,775

Depositsheldatotherfinancialinstitutionsfor operational purposes

Performing financing and loans / securities:

Performingloanstofinancialinstitutionssecuredbynon-level1HQLAandunsecuredperformingloanstofinancialinstitutions 12,454 2,452 3,094

Performingloanstonon-financialcorporateclients,loanstoretailandsmallbusinesscustomers,andloanstosovereigns,centralbanksandPSEs,ofwhich: 1,434 2,141 1,788

With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines 56,756 48,243

Performingresidentialmortgages,ofwhich: -With a risk weight of less than or equal to

35% under the CBB Capital Adequacy Ratio Guidelines -

Securities that are not in default and do not qualifyasHQLA,includingexchange-traded equities -

Other assets: -Physicaltradedcommodities,includinggold -






UnweightedValues(i.e.beforeapplyingrelevantfactors)

Nospecified

maturityLessthan6

months

More than 6 months


Over one

year

Total weighted

value

Assets posted as initial margin for for derivative contracts and contributions to default funds of CCPs -

NSFR derivative assets -NSFR derivative liabilities before deduction

of variation margin posted -All other assets not included in the

above categories 39,634 39,634OBS items 35,671 1,783Total RSF 112,718 13,888 4,593 56,756 96,317NSFR (%) - As at 31 December 2020 139%


Supplementary Financial InformationAs at 31 December 2020 (Unaudited)

(The attached financial information do not form part of the consolidated financial statements)

SUPPLEMENTARY INFORMATION TO AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2020

Global economy measures changes + impact of COVID-19TheCOVID-19 pandemic has caused a significant global economic downturnwhich has adversely affected businesses. The futureimpactoftheCOVID-19pandemicontheglobaleconomyandthebusinessesremainuncertain.TheCOVID-19pandemichasresultedinauthoritiesimplementingnumerousmeasurestocontainthespreadandimpactofCOVID-19,suchastravelbansandrestrictions,quarantines,shelterinplaceorders,andlimitationsonbusinessactivity,includingclosures.

Thesemeasuresare,amongotherthings,severelyrestrictingglobaleconomicactivity.Thekeyimpactoftheseareoutlinebelow:

- Disruption of global supply chains: The Bank realises that such disruptions will have an adverse impact on the performance and affect thecash flows/liquidityof ourSMEfinancingcustomers.TheBank is closelymonitoring theperformanceof customersespeciallythosewhoareconsideredvulnerableandisdevisingproactivemeasurestoassistthemintidingoversuchdifficulties.TheMinistryofFinance&NationalEconomy(MOFNE)hasdevisedaLiquiditySupportFund(LSF)SchemetofundtheSMEsegment,ofwhichanaggregateamountofuptoBD80millioncanbeutilisedbyBDBforonwardlendingtoaffectedSME’stotideoversuchdifficulties&minimisetheilleffects;

-Loweringassetvaluations:This isnotexpectedtohaveasignificant impactsinceBDBdoesnotundertakeassetbackedfinancingandamajorportionoftheinvestmentsdonebytheBankareinGovernmentSecuritiesheldsolelyforthepurposeofPrincipal&Profit(SPPI).HoweverthismayaffectthevaluationsforcollateralsecuritiesheldbytheBankandleadtoanincreaseintherequirementforprovisionsforECL;

-Significantlyincreasingunemploymentandunderemploymentlevels:Changesinemploymentlevelwillimpactthepurchasingpowerofthecitizens/demandforgoods&servicesofourSMEfinancingcustomersandtheirperformance/liquidity.Asstatedearlierwearemonitoringthesituationcloselyandalsotakingproactivestepstominimisetheilleffects;and

- Decreasing liquidity in markets for certain securities and causing significant volatility and disruptions in the financial, energy andcommoditymarkets:Theabove isnotexpected tohaveadirect impacton theBanksince theLongTermStable funding of theBankismainlyfromtheGovernmentandRegionalFinancial Institutions. InadditiontheBankhasHQLAofnearly60millionwhichisconsideredsufficientforthegrowthenvisagedfornextyear.HowevertheBankiscontinuouslyexploringallpossibleavenuesforraising stable funds for future growth.

These measures have also negatively impacted, and could continue to negatively impact, businesses, market participants, ourcounterparties and clients, and the global economy for a prolonged period of time. Should current economic conditions persist orcontinuetodeteriorate,weexpectthatthismacroeconomicenvironmentwillhaveacontinuedadverseeffectonourbusinessandresultsofoperations,whichcouldinclude,butarenotbelimitedto:

• Demandforourproductsandservices:Thoughitisverydifficulttoassessthelongtermimpactondemandfortheproducts&services,presentlytheBankisexperiencinganincreaseddemandduetothetightliquiditysituationonaccountofdisruptioninthesupplychain,andslackindemandforproducts/services;

• Protracted periods of lower interest rates: Not much impact is expected since a major portion of the interest bearing liabilities are at fixedratesfromRegionalFinancialInstitutionsatratesmuchbelowthemarket;

• HowevermarginsearnedbytheBankonitsfinancing&investmentportfolioisunderstressduetothereductioninyields;

• Lower assetmanagement fees; Notmuch impact is expected since the Bank has negligible fee based activities and does notundertakeassetmanagementactivities;

- Lowersalesandtradingrevenueduetodecreasedmarketliquidityresultingfromheightenedvolatility;Notapplicable.BDBdoesnotundertaketradingactivities;

- Increasednoninterestexpenses,includingoperational losses;TheoperationalexpensesofBDBareatthebareminimumandhavereduced substantially over the past few years on account of the strict control exercised. Further the total operating expenses during thefirstHYof2020despitetheincrementalcostsincurredtofacilitatesmoothworkingfromhome,enhancedsafetyoftheworkingenvironmentetc.hasbeenmarginal;



Supplementary Financial Information (Continued)As at 31 December 2020 (Unaudited)

BDB Supplementary Public Disclosure – Financial Impact of COVID-19 (Continued)

-Increasedcreditlossesduetodeteriorationinthefinancialconditionofourconsumerandcommercialborrowers,includingdecliningasset and collateral values, which may continue to increase our provision for credit losses and net charge-offs. BDB has beentraditionally following a conservative approach for recognising credit losses on account of the high risk segment it caters to. Further the entire Fisheries and Agriculture Portfolio is guaranteed by MOFNE and a substantial portion of the exposures to the SME segment iswithTamkeenguarantee.Furthertheincrementalportfoliotargetedcurrentlyisfullysecuredbywayofthirdpartycash;and

- Disruption in the Bank’s operations. The Bank’s response in terms of business continuity has been very robust.

(a)75%ofthebranchnetworkremainedopenforbusiness,and

(b)TheBankhasbeenabletodeployitstechnologicalresources/capabilitiestoenablenearly60%oftheemployeestoworkfromhome

Our provision for credit losses and net charge-offs could also be impacted by continued volatility in the energy and commodity markets.

AnyelevationinECLchargesasaresultofCOVID-19

ECL Balance as at

31/12/2019

ElevationinECLchargesasaresultofCOVID-19

ECLBalance as at

31/12/2020 Stage 1 642 320 962 Stage 2 196 (196) 429 Stage 3* 21,268 (7,294) 13,974

* Reduction is due to Technical write off of financing assets by the Group which are still subject to enforcement activity

Additionally,althoughgeneralliquiditymaybeeffectedand/orregulatorycapitalcouldbeadverselyimpactedbycustomers’withdrawalofdeposits,volatilityanddisruptionsinthecapitalandcreditmarkets,volatilityinforeignexchangeratesandcontinuedcustomerdrawson linesofcreditandpotentialdowngrades tocredit ratings, thesearenotexpected tohaveasignificantdirect impactonBDBonaccount of the following :

-TheBank’sfundingisentirelybywayofsharecapital/long-termfundingatfixedratesfromregionalfinancialinstitutions;

-IncrementalfundingduringthecurrentFYisfromtheLSFschemefundedbyMOFNE;

-Asagainsttheregulatoryrequirementof12.5%theBankmaintainsaCARofabove50%;and

- The Bank does not keep any open position in forex above the equivalent of BD 0.5 million.

Key capital and liquidity indicators

Regulatory minimum Q4 2020 YE 2019 Reasoning behind movementLCR 100% 491% 420% Funding from MOFNENSFR 100% 148% 139%

CET 1 Ratio 12.50% 62.79% 51.59%Major portion of the incremental lending is

against cash collateral from MOFNE

Ifwebecomeunabletosuccessfullyoperateourbusinessfromremotelocationsincluding,forexample,failureofourinternalorexternalinformation technology infrastructure, increased rates of employee illness, or governmental restrictions placed on our employees oroperations,thiscouldalsohaveanadverseeffectonourbusinesscontinuitystatusandresultindisruptiontoourbusiness.

TotheextenttheCOVID-19pandemiccontinuestoadverselyaffecttheglobaleconomyandadverselyaffectsourbusiness,resultsofoperationsorfinancialcondition,itmayalsohavetheeffectofincreasingthelikelihoodand/ormagnitudeofotherrisks.InresponsetotheeconomicandmarketconditionsresultingfromtheCOVID-19pandemic,governmentsandregulatoryauthorities,includingcentralbanks,haveactedtoprovidefiscalandmonetarystimulitosupporttheglobaleconomy.IntheBahrain,theCentralBankofBahrain(CBB)andothergovernmententitieshave,amongotherthings:


Supplementary Financial Information (Continued)As at 31 December 2020 (Unaudited)

BDB Supplementary Public Disclosure – Financial Impact of COVID-19 (Continued)

-Loweredtherequiredcashreserve;CashReserveRequirementhasbeenreducedbyCBBfrom5%to3%whichhasreleasedBD949KoffundsmaintainedwithCBB;

-Implementedprogramstopromoteliquidityincludinginterestfreerepurchaseagreements:BDBhassufficientliquidityandmaynotrequiretoavailthisfacility;

- Required banks to provide 6-month payment holiday to customers without charging additional interest and further deferral of four months with interest. In compliance with the above directives we had allowed deferment of instalments falling due during the 6 month periodfromMarch1,2020toAugust31,2020in2,466accountsaggregatingtoBD60.64millionwithoutanyadditionalinterestorprofit.TheaggregateamountofinstalmentsdeferredwasBD16.66million.ThemodificationlossofBD1.68million(netofsubsidiesreceivedfromtheGovernment)waschargedtoretainedearningsasdirectedbyCBB;

-Announcedprogramsforsupportingbusinessesbyprovidingdirectgovernmentassistance.TheBank(includingsubsidiaries)receivedBD576KaswagessupportfromSIOtowardssalariesofBahrainiemployeesfor3months,BD108KaswaiverofelectricitychargesandBD19KaslandrentsupportfromMOIC;

-ClarifiedsupervisoryexpectationsregardingloanmodificationsduetoCOVID-19relatednon-payment;and

- Clarified expectations for certain bank regulations related to counterparty credit risk, the current expected credit loss accountingstandard and capital adequacy regulatory treatment.

However,therecanbenoassurancethatthesemeasureswillstimulatetheglobaleconomyoravertcontinuedrecessionaryconditionsin markets or economies in which we conduct operations. Our participation in and execution of these and other measures taken by governmentsandregulatoryauthoritiescouldresult inreputationalharmandhasresulted in,andmaycontinuetoresult in, litigation,includingclassactions,or regulatoryandgovernmentactionsandproceedings.Suchactionsmay result in judgments, settlements,penalties,andfinesadversetothebusinesses.WecontinuetocloselymonitortheCOVID-19pandemicandrelatedrisksastheyevolveglobally.ThemagnitudeanddurationofthecurrentoutbreakofCOVID-19,thelikelihoodoffurtheroutbreaksofCOVID-19,futureactionstakenbygovernmentalauthoritiesand/orotherthirdpartiesinresponsetotheCOVID-19pandemic,anditsfuturedirectandindirecteffectson theglobaleconomyandourbusinessand resultsofoperationarehighlyuncertain.TheCOVID-19pandemicmaycauseprolongedglobalornational recessionaryeconomicconditionsor longer lastingeffectsoneconomicconditions thancurrentlyexist,whichcouldhaveamaterialadverseeffectonourbusiness,resultsofoperationsandfinancialcondition.

EconomicOutlook:TheuncertaintiesintheGlobalaswellasregionaleconomicsituationonaccountofCOVID-19isstillunclearandthedecreaseinGlobalaswellasregionalGDP,declineinOilprices,andchangesininflationareallexpectedtoaffectperformanceofBanks. However a reliable estimate on BDB may be possible only with the passage of time. We are closely monitoring the situation and shall be take measures to minimise the ill effects.

EBITDAC(earningbeforeITDAandCOVID-19);separatelinesitemsforanyextraordinary,non-recurring,unusualcostssuchas:lossofincome,purchaseofPPE,payingidleemployees,redundancy/restructuringcosts,increasedscreening/cleaning/securitycosts,payingmorefortransportation,costofbuyinginsurance,etc.

31-Dec-20EBITDA 1556KAdd:ExpensesdirectlyattributabletoCOVID-19 29EBITDAC 1585K

How Group is coping + measures in place + strengths/weaknesses of current structure

QualitativeexplanationonthenatureofBank’slargestexposures&howsensitivethoseare/havebeentotheimpactofCOVID-19,andtheBusinessstrategiesimplementedasaresponse(investingingovernmentbondsetc.)

Themitigantsavailable/measurestakenbytheBanktotheminimisetheilleffectsofenhancedrisksonaccountofCOVID-19hasbeenenumeratedagainsteachoftheabovetable.AdditionallytheBankhasrecentlyconcludedaCOVID-19impactassessmentofBank’slargestexposures.Theseexposuresarewelldiversifiedwithinmultipleindustrysectors.Basedontheimpactassessment,theBankhascreated certain action plans to deal with the loans that would require restructuring.

The above information should not be considered as an indication of the results of the entire year or relied upon for any other purposes. SincethesituationofCOVID-19isuncertainandisstillevolving,theaboveimpactisasofthedateofpreparationofthisinformation.Circumstancesmaychangewhichmayresultinthisinformationtobeoutofdate.Inaddition,thisinformationdoesnotrepresentafullcomprehensiveassessmentoftheCOVID-19impactontheGroup.Thisinformationhasnotbeensubjecttoaformalreviewbyexternalauditors.



Risk and Capital Management DisclosuresFor the year ended 31 December 2020

1. EXECUTIVE SUMMARY

This report has been prepared in accordance with Pillar 3 disclosure requirements prescribed by the Central Bank of Bahrain, herein referred to as “CBB”. The report has been designed to provide BDB Group’s stakeholders with detailed information on the Bank’s approach in managing capital and risk, having due regard to the operating environment.

The Bank applies the Basel framework in the measurement of its capital adequacy, and in its capital management strategy and risk management framework. CBB’s Basel III capital rules and guidelines became effective on 1st January 2015 as the common framework for the implementation of the Basel Committee on Banking Supervision’s (Basel Committee) Basel III capital adequacy framework for banks incorporated in the Kingdom of Bahrain.

BDB has adopted the Standardized Approach for Credit Risk, Market Risk and the Basic Indicator Approach for Operational Risk to determine the capital requirement.

The disclosures in this report are in addition to the disclosures set out in the consolidated financial statements for the period ended 31st December 2020 presented in accordance with the International Financial Reporting Standards (IFRS).

2. INTRODUCTION TO THE BASEL III FRAMEWORK

The CBB’s capital adequacy framework is based on three pillars consistent with the Basel III framework developed by the Basel Committee, as follows:-

• Pillar 1: calculation of the Risk Weighted Assets (RWAs) and capital requirement.

• Pillar 2: the supervisory review process, including the Internal Capital Adequacy Assessment Process (ICAAP).

• Pillar 3: rules for the disclosure of risk management and capital adequacy information.

CBB CAPITAL ADEQUACY RULES:

CBB minimum required total capital adequacy ratio (including CCB) increased from 12 percent to 12.5 percent, compared to 10.5 percent recommended by the Basel Committee. Moreover, the capital conversation buffer is newly introduced limits and minima by the CBB, such as minimum Common Equity Tier 1 Capital Ratio “CET1” of 9 percent (including CCB) and minimum T1 Capital Ratio of 10.5 percent (including CCB).

The table below summarizes the approaches available for calculating RWAs for each risk type in accordance with the CBB’s capital adequacy framework:

Credit Risk Market Risk Operational Risk

Standardised ApproachStandardised Approach Basic Indicator Approach

Internal Models Approach Standardised Approach

For regulatory reporting purposes, BDB is using the Standardised Approach for credit risk and market risk, and Basic Indicator Approach for operational risk.

i) Credit Risk

Credit Risk represents the potential financial loss as a consequence of a customer’s inability to honour the terms and conditions of a credit facility. Such risk is measured with respect to counterparties for both on-balance sheet assets and off-balance sheet items. The bank has a robust credit risk management architecture which is explained in greater detail in Note 2 of the consolidated financial statements.

The Bank does not use any external credit assessment institutions and the risk rating for the exposures are based on the internal credit framework and policy guidelines of the Bank.

For regulatory reporting purposes, BDB is using the Standardised Approach for credit risk.

Risk and Capital Management Disclosures (Continued)

For the year ended 31 December 2020


2. INTRODUCTION TO THE BASEL III FRAMEWORK (Continued)

ii) Market Risk

Market Risk is the risk of potential losses arising from movements in market prices of financial instruments as a result of changes in market rates (such as interest rates and foreign exchange rates).

For the regulatory market risk capital requirement, BDB is using the Standardised Approach for the calculation of regulatory market risk capital.

iii) Operational Risk

Operational Risk is the risk of monetary loss on account of human error, fraud, systems failures or the failure to record transactions. In order to manage and mitigate such risks, the Bank ensures that proper systems and resources (financial and personnel) are available to support the Bank’s operations. Proper segregation of duties and other controls (including reconciliation, monitoring and reporting) are implemented to support the various operations and activities.

For the regulatory operational risk capital requirement, BDB is using the Basic Indicator Approach for the calculation of regulatory operational risk capital.

Regulatory ReformsThe Bank is operating as a retail bank with special waivers under a license issued by the Central Bank of Bahrain (“CBB”), with headquarters and branches in Bahrain. The Bank’s capital adequacy requirements are computed on a consolidated basis.

3. GROUP STRUCTURE

The Group’s financial statements are prepared and published on a full consolidation basis, with all subsidiaries being consolidated in accordance with IFRS. As at 31st December 2020, the Group consists of the Bank and its following subsidiaries:

Name Country of incorporationBahrain Business Incubator Centre WLL Kingdom of BahrainBahrain Export Development Center WLL Kingdom of BahrainAl-Waha Venture Capital Fund Company BSC Kingdom of BahrainMiddle East Corner Consultancy CO. WLL* Kingdom of BahrainNeotech WLL Kingdom of Bahrain

* The Bank is exposed, or has rights, to variable returns from its involvement with Middle East Corner Consultancy Co. WLL; and has the ability to affect those returns through its power over Middle East Corner Consultancy Co. WLL and thus is deemed as subsidiary of the Bank.

Restrictions on capital and transfer of funds within the Group

Since the Bank’s subsidiaries are not regulated financial institutions, there is no regulatory impediment to the transfer of retained earnings to the Bank. However, as a separate legally incorporated entity, the transfer of paid in capital and mandatory reserves would require shareholder action. As the major shareholder (either direct or indirect) in the entity, the Bank has the power to undertake the legal processes for the transfer of such capital. The Bank’s subsidiaries are registered and domiciled in Bahrain and there are no exchange controls or other restrictions on the transfer of funds.





4. CAPITAL STRUCTURE AND CAPITAL ADEQUACY

The Bank’s regulatory capital base comprises of (a) CET 1 capital which includes share capital, reserves and retained earnings. (b) Tier 2 capital which consist of general loan loss provisions.

Capital structure, minimum capital and capital adequacyThe Bank’s paid up capital consists only of ordinary shares and does not have any other type of capital instruments.

The bank’s shareholders are Ministry of Finance (89.74%), Social Insurance Organization and Pension Fund (5.13% each)

The Bank’s regulatory capital base is as detailed below:


Common Equity Tier 1 (CET1)Issued and full paid ordinary shares 65,000Legal / Statutory reserve 1,186Retained earnings (306)Other reserves 4,048Current period Profit 563Cumulative fair value changes on FVOCI investments (Debt) 1,146Total Common Equity Tier 1 (CET1) (A) 71,637Additional Tier 1 (AT1) -Total Tier 1 (T1) 71,637

Tier 2 Capital (T2)Expected Credit Losses (ECL) 1,194 Total Tier 2 (T2) (B) 1,194 Total Capital Base (Tier 1 + Tier 2) (C=A+B) 72,831

Capital Requirement for Risk Weighted Exposure

Credit Exposure

before credit risk mitigant

Eligible financial

collateral

Credit Exposure after risk mitigant

Risk weighted exposure

Capital Requirement

at 12.5%As at 31 December 2020Cash items 177 - 177 - - Sovereigns 91,797 - 91,797 - - Banks 622 - 622 409 51 Corporates 137,002 43,629 93,373 49,769 6,221 Past due exposures 14,731 7,641 7,090 7,678 960 Investment in securities 5,003 - 5,003 7,878 985 Holding of Real Estate 13,186 - 13,186 25,411 3,176 Others assets 4,386 - 4,386 4,386 548 Total Credit Risk Exposure 266,904 51,270 215,634 95,531 11,941 Market Risk 725 91 Operational Risk 17,833 2,229 Total Risk Weighted Assets (D) 114,089 14,261Capital Adequacy Ratio (C)/(D) 63.84%




CET1 Capital Adequacy Ratio (A)/(D) 62.79%

5. CREDIT RISK – PILLAR 3 DISCLOSURES

This section describes BDB’s exposure to credit risk, and provides detailed disclosures on credit risk in accordance with the CBB’s Basel III framework, in relation to Pillar 3 disclosure requirements.

Definition of exposure classes

The Bank has a diversified funded and unfunded credit exposure. These exposures are classified as standard portfolio per CBB’s capital adequacy requirements.

Brief description of applicable standard portfolio are as follows:

a. Claims on sovereigns:

These pertain to exposures to governments and their central banks. Claims on Bahrain and GCC sovereigns are risk weighted at 0%. Claims on all other sovereigns are given a risk weighting of 0% where such claims are denominated and funded in the relevant domestic currency of that sovereign. Claims on sovereigns, other than those mentioned above are risk weighted based on their credit ratings.

b. Investment in securities and sukuk:

Investments in listed equities are risk weighted at 100% while unlisted equities are risk weighted at 150%.

c. Claims on banks:

Claims on banks are risk weighted based on external rating agencies ( S&P, Moody’s, Fitch , and Capital intelligence). Short-term claims on locally incorporated banks are assigned a risk weighting of 20% where such claims on the banks are of an original maturity of three months or less and the claims are denominated and funded in either Bahraini Dinars or US Dollar.

Preferential risk weighting that is one category more favourable than the standard risk weighting is assigned to claims on foreign banks licensed in Bahrain of an original maturity of three months or less denominated and funded in the relevant domestic currency. Such preferential risk weight for short-term claims on banks licensed in other jurisdictions are allowed only if the relevant supervisor also allows this preferential risk weighting to short-term claims on its banks.

No claim on an unrated bank would receive a risk weight lower than that applied to claims on its sovereign of incorporation.

d. Claims on corporates:

Claims on corporates are risk weighted based on credit ratings. Risk weighting for unrated (corporate) claims are assigned at 100%.

e. Impairment of assets:

The Bank assesses at each reporting date whether there is any objective evidence that a specific financial asset is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘impairment event’) and that impairment event (or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include indications that the borrower is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that it will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

f. Restructured financing facilities:

Where possible, the Bank seeks to restructure facilities. This may involve extending the payment arrangements and the agreement of new financing facility conditions. Management continuously reviews renegotiated financing facilities to ensure that all criteria are met and that future payments are likely to occur. The financing facilities continue to be subject to impairment assessment, calculated using the facility’s original effective interest rate.

g. Past due exposures:

This includes claims, for which the repayment is overdue for more than 90 days. The risk weighting for such loans is either 100% or 150% is applied depending on the level of provisions maintained against the assets.

h. Equity Portfolio:

Investment in securities and financial entities are risk weighted at a minimum risk weight of 100% for listed entities or 150% for unlisted entities, unless such investments exceed 10% of the eligible capital of investee entity, in which case they are deducted from the Bank’s capital.

i. Other assets:

These are risk weighted at 100%.





5. CREDIT RISK – PILLAR 3 DISCLOSURES (Continued)

j. Holding of real estate:

All other holdings of real estate by banks (i.e. owned directly, subsidiaries or associate companies or other arrangements such as trusts, funds or REITs) are risk-weighted at 200%. Investment in listed real estate companies and investment in unlisted real estate companies are risk-weighted at 300% and 400% respectively. Premises occupied by the Group are weighted at 100%.

k. Related party transactions and balances:

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include entities over which the Bank exercises significant influence, major shareholders, directors and executive management of the Bank. Such related parties in the ordinary course of business at commercial interest and commission rates (Refer note 16 of the interim condensed consolidated financial statements as at 31 December 2020).

Amounts due from related parties are unsecured.

l. Highly leveraged counterparties:

The Bank does not lend to highly leveraged and other high risk counterparties as defined in PD-1-3-24(e).

6. FUNDED AND UNFUNDED TOTAL CREDIT EXPOSURE

Total funded

credit exposure

Total un-funded

credit exposure

Average quarterly

credit exposure

Sovereigns 56,072 35,148 92,180 Banks 622 - 2,377 Corporates 131,899 2,980 132,786 Past due exposures 14,731 - 15,321 Other assets and Cash items 3,550 - 3,181 Total credit risk 206,874 38,128 245,844

7. CONCENTRATION OF CREDIT RISK BY INDUSTRY & REGION (EXPOSURES SUBJECT TO RISK WEIGHTING)

2020Country Funded Unfunded Total

Government & public sector Bahrain 56,072 35,148 91,220 Banks and financial institutions Bahrain 622 - 622 Trading and Manufacturing Bahrain 91,639 641 92,280 Educational Institutions & Healthcare Bahrain 8,681 150 8,831 Hospitality, media and transportation Bahrain 14,454 150 14,604 Fisheries, agriculture & dairy Bahrain 5,390 - 5,390 Food processing Bahrain 8,641 12 8,653 Others Bahrain 21,375 2,027 23,402 TOTAL 206,874 38,128 245,002




8. CREDIT CONCENTRATION GREATER THAN 15% INDIVIDUAL OBLIGOR LIMIT

Total credit exposures in excess of 15% individual obligor limit 2020

Sovereigns 91,390

9. SEGMENT WISE BREAKDOWN OF NON PERFORMING LOANS AND IMPAIRMENT PROVISION

Impaired loans

(net of provision)

Stage 3: Lifetime

ECL credit impaired

Chargefor theperiod Write off

Project finance 13,566 13,974 260 7,554

Fisheries and Agriculture 1,165 - - -

14,731 13,974 260 7,554

10. RESIDUAL CONTRACTUAL MATURITY

Maturity analysis of assets

The table below summarises the residual contractual maturity profile of the Group’s assets as at 31st December 2020

Up to 1 month

1 to 3 months

3 to 6 months

6 monthsto 1 year

1 to 3 years

3 to 5 years

5 to 10 years

10 to 20 years

Above 20 years Total

2020

AssetsCash and balances with

Central Bank of Bahrain 2,391 - - - - - - - - 2,391Placements with banks and

other financial institutions 3,722 - - - - - - - - 3,722Islamic financing and loans

to customers 16,828 1,460 1,301 5,171 55,892 14,798 50,009 1,171 - 146,630Investment securities 50,581 - - - - - - - - 50,581Other assets - - 3,550 - - - - - - 3,550

Total funded credit exposures 73,522 1,460 4,851 5,171 55,892 14,798 50,009 1,171 - 206,874Unfunded credit exposures 5,242 15,022 329 17,289 240 6 - - - 38,128Total credit risk 78,764 16,482 5,180 22,460 56,132 14,804 50,009 1,171 - 245,002





11. PAST DUE AND IMPAIRED LOANS (NET) - AGE ANALYSIS

i) By Geographical area

2020Three months

to one yearOne to

three yearsOver three

years TotalBahrain 16,387 3,401 1,102 20,890TOTAL 16,387 3,401 1,102 20,890

ii) By Segment wise

2020Three months

to one yearOne to

three yearsOver three

years TotalProject finance 15,868 2,955 697 19,520 Fisheries and Agriculture 519 446 405 1,370 TOTAL 16,387 3,401 1,102 20,890

12. GEOGRAPHICAL DISTRIBUTION OF IMPAIRMENT PROVISIONS FOR LOANS AND ADVANCES TO CUSTOMERS

The Bank and its subsidiaries operate and grant loans/financing facilities locally to Bahrain entities and persons only.

2020

Bahrain

Specific impairment provision - Stage 3 13,974

TOTAL 13,974

13. RECONCILIATION OF CHANGES IN EXPECTED CREDIT LOSSES

2020

Stage 3: Lifetime ECL

credit impaired

Stage 1: 12-month ECL

and stage 2 : Lifetime ECL not credit- impaired Total

Balance at 1 January 2020 21,268 838 22,106 Amounts written off during the year (7,554) - (7,554)Charge for the year 1,851 1,215 3,066 Recoveries during the year (1,591) (662) (2,253)At 31 December 2020 13,974 1,391 15,365

Restructured Credit Facilities

The Bank has restructured credit facilities amounting to BD 4,013 thousands during the year ended 31 December 2020. Restructuring concessions mainly related to deferral of loan installments to assist customers overcome temporary cash crunch situations or to realign the repayment with the borrower’s revised cash flow projections.

The above restructurings did not have a significant impact on the present or future earnings and were primarily extensions of the loan/financing tenor.




14. CREDIT RISK MITIGATION

The reduction of the capital requirement attributable to credit risk mitigation is calculated in different ways, depending on the type of credit risk mitigation. The main collaterals taken for risk mitigation on credit exposures are deposits held by customers, residential / commercial property mortgage, investment securities, counter-guarantees from other banks, Tamkeen guarantees etc. However, for purposes of capital adequacy computation, only eligible collateral recognized under Basel III is taken into consideration.

15. ELIGIBLE FINANCIAL COLLATERAL AND GUARANTEES

Eligible financial collateral, and guarantees, presented by standard portfolio are as under:

Gross credit exposure

Financial collateral

Credit exposure after credit risk

mitigantAs at 31 December 2020Sovereigns 91,797 - 91,797 Banks 622 - 622 Corporates 137,002 43,629 93,373 Past due exposures 14,731 7,641 7,090 Investments in equities/funds 5,003 - 5,003 Holding of real estate 13,186 - 13,186 Other assets and cash items 4,563 - 4,563

266,904 51,270 215,634

Tamkeen guarantees a percentage of the outstanding balance of Islamic financing in accordance with the agreement between the Bank and Tamkeen. Moreover, agriculture and fisheries loans are guaranteed by the Government of Bahrain.

16. SENSITIVITY ANALYSIS - INTEREST RATE RISK (IRRBB)

Impact on net interest income for the year ended 31 December 2020

2020

Bahraini DinarAssets 249,529 Liabilities 221,691 (+) 200 basis points 557 (-) 200 basis points (557)

US DollarAssets 21,035 Liabilities 28,809 (+) 200 basis points (155)(-) 200 basis points 155

Kuwaiti DinarAssets 8 Liabilities - (+) 200 basis points 0 (-) 200 basis points (0)

Saudi RiyalsAssets 6,855 Liabilities 7,583 (+) 200 basis points (15)(-) 200 basis points 15





17. MARKET RISK, INTEREST RATE GAP

Market riskMarket risk is defined as potential adverse changes in the fair value or future cash flows of a trading position or portfolio of financial instruments resulting from the movement of market variables, such as interest rates, currency rates, equity prices and commodity prices, market indices as well as volatilities and correlations between markets. As its primary tool, the Bank measures its market risk exposure using the Standardised Approach under Basel III.

The Bank uses the Standardised Approach for calculating market risk capital charges for the following market risk components:

• Equity exposure risk

• Interest rate exposure risk

• Foreign currency exposure risk

• Commodity risk

The Bank’s market risk capital charge is largely composed of foreign currency risk arising from the Bank’s foreign exchange exposure on investments denominated mainly in Kuwaiti dinars, Saudi riyals and USD, and interest rate risk arising on the bond portfolio. The capital requirement for market risk using the Standardised Approach as at 31 December 2020 was as follows:

Capital Requirements2020 Maximum Minimum Average

Risk TypeEquity risk capital - - - -Foreign exchange risk capital 58 64 58 60Interest rate risk capital - - - -Commodity risk capital - - - -

Interest rate riskInterest rate risk arises from the possibility that changes the interest rates will affect future profitability or the fair values of the financial instruments. The Bank is exposed to interest rate risks due to mismatches of interest rate repricing on maturity of assets and liabilities. Positions are monitored periodically to ensure that this is maintained within the established limits. The Banks assets and liabilities reprice only on maturity.

The Bank’s interest rate sensitivity position is based on the maturity dates, as follows

Up to 1 month

1 to 3 months

3 to 6 months

6 months to 1 year

1 to 5 years

Over 5 years

Non-interest bearing Total

2020

AssetsCash and balances with Central Bank

of Bahrain - - - - - - 2,391 2,391 Placements with banks and other

financial institutions 3,722 - - - - - - 3,722 Islamic financing and loans to customers 16,828 1,460 1,301 5,171 70,690 51,180 - 146,630 Other assets 50,581 - - - - - 3,550 54,131 Total assets 71,131 1,460 1,301 5,171 70,690 51,180 5,941 206,874

LiabilitiesTerm loans - 251 - 251 25,875 8,927 - 35,304 Deposits 15,233 2,540 1,315 752 43,095 55,095 - 118,030 Other liabilities - - - - - - 4,444 4,444 Total liabilities 15,233 2,791 1,315 1,003 68,970 64,022 4,444 157,778 Net liquidity gap 55,898 (1,331) (14) 4,168 1,720 (12,842) 1,497 49,096




18. EQUITY POSITION IN THE BANKING BOOK2020

Net exposure Capital requirement

Publicly traded 1 0 Privately held 5,656 707 TOTAL 5,657 707

19. GAINS ON EQUITY INVESTMENTS2020

(i) Realised Gains/ Losses in the statement of profit or loss -(ii) Realised Gains/ Losses in retained earnings -(iii) Unrealised Gains/ Losses in CET1 Capital (5)

The Bank does not have any equity investments subject to supervisory transition or grandfathering provisions.

20. DERIVATIVESForeign exchange contracts

Notional – Banking book 35,148

21. OPERATIONAL AND LEGAL RISKS Operational risk is the risk of loss arising from errors that can be made in instructing payments or settling transactions, breakdown in technology and internal control systems. The Bank uses the Basic Indicator Approach under the capital adequacy framework for measuring and managing its operational risk. Currently, the Bank conducts its business from a single location. BDB is a retail bank with some restrictions and accordingly, the number of client relationships and volume of transactions at BDB are moderate on average.

BDB’s operations are conducted according to well-defined procedures. These procedures include a comprehensive system of internal controls, including segregation of duties and other internal checks, which are designed to prevent either inadvertent staff errors or malfeasance prior to the release of a transaction. The Bank also engages in subsequent monitoring of accounting records, daily reconciliation of cash and securities accounts and other checks to enable it detect any erroneous or improper transactions which may have occurred. Specific limits are set up to mitigate and monitor the Bank’s exposure.

Operational risk is managed by the Operational risk management unit in the Risk management department. The scope of the Internal Audit department encompasses audits and reviews of all business units, support services and branches. The internal audit process focuses primarily on assessing risks and controls and ensuring compliance with established policies, procedures and delegated authorities. Products and services are reviewed by the Internal Audit department and assessed for operational risks. The Internal Audit department is operationally independent and reports significant internal control deficiencies to the Audit Committee.

The Bank has a Business Continuity Plan (BCP) to ensure that the critical activities are supported in case of an emergency. The BCP is approved by the Board of Directors.

Bank’s ICAAP limit of 16% has been fixed to absorb any unforeseen event as compared to regulatory capital requirement of 12.5%.

Legal risk is the risk arising from the potential that unenforceable contracts, lawsuits or adverse judgments can disrupt or otherwise negatively affect the operations of the group. The Group has developed controls and procedures to identify legal risks and believes that losses will not be material.

22. FINES & PENALTYAmount in BHD Actual

2020Penalty paid to Central Bank of Bahrain 1

23. LIQUIDITY COVERAGE RATIO (LCR)According to LM-11.1.2 under the “Liquidity Risk Management Module” in the CBB Rulebook, The Bank has calculated the Liquidity Coverage Ratio, which is at 491% as on 31st December 2020

24. LEVERAGE RATIO (LR)According to CA-15.5.1 under the “Leverage Ratio & Gearing Requirements” Module in the CBB Rulebook, The Bank has calculated the Leverage Ratio, which is at 27.1% as on 31st December 2020

25. LEVERAGE RATIO (LR)Organizational Restructuring: The Board of Directors has employed the services of an external consultant for recommendations on the Organization Structure, Remuneration Packages and incentive structure.



Composition of Capital Disclosure RequirementsAs at 31 December 2020

Step 1: Balance sheet under the regulatory scope of consolidation

This step in not applicable to the Bank since the scope of regulatory consolidation and accounting consolidation is identical.


Composition of Capital Disclosure Requirements (Continued)


Step 2: Reconciliation of published financial balance sheet to regulatory reporting as at 31 December 2020

Balance sheet as in published financial

statementsConsolidated PIR

data

AssetsCash and balances at central banks 2,568 2,568 Placements with banks and other financial institutions 3,722 3,727 Investment securities 56,364 56,364 Investments in associates 374 374 As at 31 December 2020 56,738 56,738

of which:Significant investments in capital of financials insitutions exceeds the 10% of CET1Amount in excess of 10% of CET1 to be deductedAmount in excess of 10% of CET1 to be deducted in year 1

Investment property 11,071 11,071 Loans and advances 146,630 148,021 of which: General loan loss provision which qualify as capital 1,391 - Prepayments, accrued income and other assets 3,828 3,848 Property, plant and equipment 1,926 1,926 Total assets 226,483 227,899

LiabilitiesDeposits from banks and other financial institutions - - Customer accounts 118,030 118,030 Term Loans 35,304 35,304Repurchase agreements and other similar secured borrowingDerivative financial instrumentsAccruals, deferred income and other liabilities 4,444 4,348 Total liabilities 157,778 157,682

Shareholders' EquityPaid-in share capital 65,000 65,000 Shares under employee share incentive schemeTotal share capital 65,000 65,000 of which amount eligible for CET1 - 65,000 of which amount eligible for AT1 - -Retained earnings (2,656) (2,656)Statutory reserve 1,186 1,186 Other Reserve 4,048 4,048General reserveShare premiumDonations and charity reserveGeneral loan loss provision which qualify as capital 1,512 Available for sale revaluation reserve 1,146 1,146Share of Available for sale revaluation reserve relating to associates not considered for regulatory capitalMinority interest in subsidiaries' share capital (19) (19)Total shareholders' equity 68,705 70,217 Total liabilities & Shareholders' Equity 226,483 227,899



Step 3: Composition of Capital Common Template (transition) as at 31 December 2020

Composition of Capital and mapping to regulatory reports

Component of

regulatory capital

Source based on reference

numbers / letters of the balance

sheet under the regulatory scope of consolidation

from step 2

Common Equity Tier 1 capital: instruments and reserves

1 Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus 65,000

2 Retained earnings 257

3 Accumulated other comprehensive income (and other reserves) 6,380

4 Not Applicable -

5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) -

6 Common Equity Tier 1 capital before regulatory adjustments 71,637

Common Equity Tier 1 capital: regulatory adjustments

7 Prudential valuation adjustments -

8 Goodwill (net of related tax liability) -

9 Other intangibles other than mortgage-servicing rights (net of related tax liability) -

10 Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) -

11 Cash-flow hedge reserve -

12 Shortfall of provisions to expected losses -

13 Securitisation gain on sale (as set out in paragraph 562 of Basel II framework) -

14 Not applicable. -

15 Defined-benefit pension fund net assets -

16 Investments in own shares (if not already netted off paid-in capital on reported balance sheet) -

17 Reciprocal cross-holdings in common equity -

18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) -

19 Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) -

20 Mortgage servicing rights (amount above 10% threshold) -

21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) -

22 Amount exceeding the 15% threshold -

23 of which: significant investments in the common stock of financials -

24 of which: mortgage servicing rights -

25 of which: deferred tax assets arising from temporary differences -

26 National specific regulatory adjustments -





Component of

regulatory capital




from step 2

REGULATORY ADJUSTMENTS APPLIED TO COMMON EQUITY TIER 1 IN RESPECT OF AMOUNTS SUBJECT TO PRE-2015 TREATMENT -

27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions -

28 Total regulatory adjustments to Common equity Tier 1 71,637

29 Common Equity Tier 1 capital (CET1) -

Additional Tier 1 capital: instruments

30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus -

31 of which: classified as equity under applicable accounting standards -

32 of which: classified as liabilities under applicable accounting standards -

33 Directly issued capital instruments subject to phase out from Additional Tier 1 -

34 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group AT1) -

35 of which: instruments issued by subsidiaries subject to phase out -

36 Additional Tier 1 capital before regulatory adjustments -

Additional Tier 1 capital: regulatory adjustments

37 Investments in own Additional Tier 1 instruments -

38 Reciprocal cross-holdings in Additional Tier 1 instruments -

39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) -

40 Significant investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) -


REGULATORY ADJUSTMENTS APPLIED TO ADDITIONAL TIER 1 IN RESPECT OF AMOUNTS SUBJECT TO PRE-2015 TREATMENT -

42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions -

43 Total regulatory adjustments to Additional Tier 1 capital -

44 Additional Tier 1 capital (AT1) -

45 Tier 1 capital (T1 = CET1 + AT1) 71,637

Tier 2 capital: instruments and provisions

46 Directly issued qualifying Tier 2 instruments plus related stock surplus -

47 Directly issued capital instruments subject to phase out from Tier 2 -

48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) -

49 of which: instruments issued by subsidiaries subject to phase out -






Component of

regulatory capital




from step 2

50 Provisions 1,194

51 Tier 2 capital before regulatory adjustments 1,194

Tier 2 capital: regulatory adjustments

52 Investments in own Tier 2 instruments -

53 Reciprocal cross-holdings in Tier 2 instruments -

54 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) -

55 Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) -


REGULATORY ADJUSTMENTS APPLIED TO TIER 2 IN RESPECT OF AMOUNTS SUBJECT TO PRE-2015 TREATMENT -

OF WHICH: [INSERT NAME OF ADJUSTMENT]

OF WHICH: …

57 Total regulatory adjustments to Tier 2 capital -

58 Tier 2 capital (T2) 1,194

59 Total capital (TC = T1 + T2) 72,831

RISK WEIGHTED ASSETS IN RESPECT OF AMOUNTS SUBJECT TO PRE-2015 TREATMENT

60 Total risk weighted assets 114,089

Capital ratios

61 Common Equity Tier 1 (as a percentage of risk weighted assets) 62.79%

62 Tier 1 (as a percentage of risk weighted assets) 62.79%

63 Total capital (as a percentage of risk weighted assets) 63.84%

64 Institution specific buffer requirement (minimum CET1 requirement plus capital conservation buffer plus countercyclical buffer requirements plus D-SIB buffer requirement expressed as a percentage of risk weighted assets) 9.00%

65 of which: capital conservation buffer requirement 2.50%

66 of which: bank specific countercyclical buffer requirement (N/A) 0.00%

67 of which: D-SIB buffer requirement (N/A) 0.00%

68 Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted assets) %62.79

National minima including CCB (if different from Basel 3)

69 CBB Common Equity Tier 1 minimum ratio 9.00%

70 CBB Tier 1 minimum ratio 11.00%

71 CBB total capital minimum ratio 12.50%

Amounts below the thresholds for deduction (before risk weighting)





Component of

regulatory capital




from step 2

72 Non-significant investments in the capital of other financials 1,529

73 Significant investments in the common stock of financials 374

74 Mortgage servicing rights (net of related tax liability) -

75 Deferred tax assets arising from temporary differences (net of related tax liability) -

Applicable caps on the inclusion of provisions in Tier 2

76 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardised approach (prior to application of cap) 1,512

77 Cap on inclusion of provisions in Tier 2 under standardised approach (1.25% of Credit Risk weighted Assets) 1,194

78 N/A -

79 N/A -

Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2020 and 1 Jan 2024)

80 Current cap on CET1 instruments subject to phase out arrangements -

81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) -

82 Current cap on AT1 instruments subject to phase out arrangements -

83 Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities) -

84 Current cap on T2 instruments subject to phase out arrangements -

85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities -



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